Housing crunch: 'You can't build them for these prices'

If you have looked for a house recently, you might have been told: You cannot build them for what you can buy them for at the moment.

While it is common for new builds to have a price premium over existing houses, in part because they are often built to higher specifications and should need less maintenance, the premium is higher than normal at the moment - whether you are buying from a developer or trying to build on bare land yourself.

Using data from Trade Me and CoreLogic, RNZ estimated that it would cost about $1.5 million to build a house in Auckland with the median floor area of 154sqm, and on the median section size of 600sqm, at the median sale price of the city's bare land. This assumes a build cost of $4000 per sqm.

The median asking price on Trade Me is $986,750.

Even assuming that the section might be smaller, at 300sqm the cost of buying land and putting up such a new build would be just over $1 million.

In Canterbury, CoreLogic data shows land is cheaper. There, a house with a floor area of the median 158sqm and land area of 637sqm would cost $989,000 to build compared to a median Trade Me asking price for the region of $688,200.

The incentive to build as opposed to buy existing was relatively low, BNZ chief economist Mike Jones said.

"The fact house prices have been flat or falling for a number for years now and construction costs are up 30 or 40 percent… the median home price is just under $800,000 and new homes if you look at what's being consented is just under $1 million. It's quite a gap. There are always going to be differences but at a macro level the incentive to build is lower."

CoreLogic chief property economist Kelvin Davidson said it was hard to gauge precise costs for someone who bought land and then had a house built on it because it could vary a lot, and was unlikely to be captured in data anywhere.

But there was a premium being paid for new builds sold by developers, too, he said. The latest estimate of the value of existing houses was $785,000 on a nationwide basis, and new builds were $827,000. For townhouses, the difference was $609,000 versus $744,000.

Between 2002 and 2024, the margin for a new build had ranged from -2 percent to 15 percent, CoreLogic data showed. It went negative after the global financial crisis, where for two years from the middle of 2009, it was cheaper to build than buy a house.

Builders said part of the spread in cost between buying an existing home and building new was that the value of land had not dropped as much as existing homes.

"The cost of buying land and building a house on it is less than what it's worth to buy a secondhand house without the risk," one said.

"Within the same subdivision you could spend the same money without the risk and move in on Tuesday and spend less than the build cost could have been.

"Developers aren't doing mortgagee sales and therefore dropping the price of land. The developers all have the balance sheet to hold it."

Auckland land prices are down 9.2 percent from their peak, and Canterbury's down 7.4 percent. In contrast, houses nationwide are down 16.7 percent from their peak, according to the Real Estate Institute.

Davidson's colleague, head of research Nick Goodall, said it was concerning because the numbers would be less likely to stack up for developers to build new property.

The cost of construction had been increasing at an annual rate of 10 percent or 12 percent at the peak, he said. It had since slowed and was 1.1 percent down in the second quarter of this year but it would take time for the equilibrium to come back.

"A big chunk of the cost is having the land to build on and construction costs haven't declined, just slowed the rate of growth."

Most development now was happening on sections where an existing property was knocked down for more to be put in its place, he said.

In the second quarter of this year, there were only 230 sales of bare land in Auckland, 290 in Canterbury and 79 in Waikato.