Private property issue #35 - pavlova paradise lost

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Many investors think everyone wants the “Kiwi dream.” A big house with an even bigger backyard.

And 10 years ago, it looked like that was true. But not anymore.

10 years ago, most new dwelling consents were standalone houses. Today consents for townhouses have surpassed standalone houses for the first time.

And I recently read a doctoral thesis that suggests that the quarter-acre dream is only a dream for (just under) two-quarters of the population.

Nadine Dodge interviewed 450 Wellingtonians. And her research shows that everyone wants different things.

Investors need to take note because it impacts both the rentability of their properties and their resale value.

What properties do people want?

Kiwis fall into one of four categories:

#1 – People who like high-density (28% of people)

These people want to live in townhouses and apartments close to city centres.

The data shows they prefer townhouses over apartments. But will go for an apartment for the right price and location.

#2 – People who like medium-density (24% of people)

These people want to live in a mix of standalone houses (on small sections), townhouses and apartments. And they don’t mind living close to other people; these people care about location.

#3 – People who like low-density (26% of people)

These people want to live in standalone houses with a backyard (not huge, but big enough for the kids to run around). They don’t mind commuting to the city or driving long distances.

#4 – People who like ultra-low-density (21% of people)

All these people want is a standalone house on a decent section. They don’t care if they live half an hour outside the city. They don’t want neighbours living close to them.

Why should property investors care?

Some investors fall into the trap of thinking:

“I like living in a standalone house ... so I'm going to buy one as an investment. That’s what people want to live in.”

That’s not necessarily the case.

Some people want low-density living, but over half of people (52%) in this survey prefer medium or high-density living.

Last week I was speaking to a first-time investor in Wellington. She fell into the “low density” category.

She lived in a standalone house on a mid-sized section and loved it.

And for her first investment, she was set on buying a similar property down the road. In her mind, apartments and townhouses might give a better yield … “but who wants to live in them.”

This data changed her thinking. Because although a quarter of the population wants the same house as her …

More than two-quarters of the population want something higher density. A fifth wants something even lower density.

How are kiwi’s housing needs changing?

Over time, what Kiwis want in a house is changing. And it’s not just the dwelling consents suggesting this.

The research showed that home buyers primarily care about affordability.

So as house prices increases and debt-to-income ratios become stretched, people are turning to more affordable options.

For example, the average townhouse in Auckland is 30% cheaper than the average standalone house.

And Nadine sees this anecdotally as well. When starting her PhD, she was told it was a “foolish” topic. “Why look at the preference for medium-density houses when the obvious preference was for standalone houses.”

But she says, “after surveying 450 people, I found an unmet demand for higher-density housing in accessible neighbourhoods.

Ten years later … the fact that there is demand for medium density housing is so obvious now that it would be a foolish PhD topic.”

Read the whole thesis here.

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