If you’ve been looking for a home for a while, you’ve probably put some thought into the option of building a new house or buying a new-build property. Committing a whole heap of money to something that doesn’t exist yet is a big step, but the rewards can be big too.
There are many potential advantages to building a new home. Apart from choosing a layout you want, you get a home that needs no initial maintenance, is healthy and efficient, and qualifies for a low-deposit mortgage.
You might also be wondering whether building a home is a more affordable way to go. Here’s a guide to help you compare the typical prices of existing houses with new-builds, so you can get started on estimating the cost of your new-build home.
When you’re ready for professional advice on new-build mortgages and the various government incentives, we have a free service that connects you with one of the country’s best mortgage advisers. They’re at the top of their field and are paid by the lender you eventually choose, so their service costs you nothing.
The median price of existing houses in New Zealand
The extent of New Zealand’s house price inflation will come as no surprise if you’ve been watching the news. It’s a concern for everyone, but particularly people wanting to buy their first home.
According to the July 2021 monthly property report from the Real Estate Institute of New Zealand (REINZ), median residential property prices across New Zealand rose 28.7% from $637,000 to $820,000 between June 2020 and June 2021.
Auckland topped the median price list once again (setting yet another record) by rising 25% from $920,000 to $1,150,000. But the largest year -on-year median price increases were outside our main centres in more affordable regions such as Marlborough (56%), Taranaki (41.5%), Gisborne (37.5%) and Manawatu/Whanganui (35.6%).
Understanding median prices
The median sale price is the middle price if all sales were ranked from highest to lowest. It can be skewed for a particular area if most sales happened to be either high or low priced homes. It can also be different to the median estimated value for all homes in a location. For example, homes.co.nz published median home estimates in June 2021 for our main centres. The figure for Wellington was $1,110,000, yet the median sale price for the Wellington region was $885,000. This suggests a higher percentage of sales were lower priced homes.
The median sale price still provides a useful broad indicator for comparing regions and how things are changing. Obviously, actual prices within any region will vary considerably, depending on the type of home, its condition and demand for its location.
Median 2021 house prices by region
Here’s the regional breakdown of median house sale prices from REINZ.
|June 2021 median sale price ($)||% change since June 2020|
|NZ ex Auckland||680,000||25.9|
|Bay of Plenty||840,000||31.3|
Average building costs are also rising
So what’s happening to the cost of building a new home? Is it rising to the same degree? Unfortunately, the answer’s not that easy to find because there are so many variables.
The state-owned enterprise Quotable Value (QV) publishes data for the building cost only, excluding costs such as land, utilities connections and council fees. According to QV, building a new home in six of New Zealand’s main centres rose on average by 2.0% in the year to October 2020 and 15% over the five years to 2020.
Here’s a summary of QV’s findings for the average costs of building a standard 140m², three-bedroom, one-bathroom home in October 2020, along with the percentage increase since October 2019.
Average cost of a new-build house in 2021
In more recent times, there have been news reports of materials and labour shortages inflating house building prices more rapidly than usual. Data published by Canstar in June 2021 indicates that the cost-per-square metre has increased 8.5% to $2,428 since 2020. This cost is based on council building consent applications, and excludes fees and land prices.
Interestingly, CoreLogic tracks materials and labour costs, rather than building consent data, to produce their Cordell Building Indices. They published a 2.2% increase in residential construction costs in the three months to June 2021. While this was a significant increase on previous quarters, the annual increase was only 4.5%. That’s much lower than the rise in consented cost per square metre reported by Canstar. Both figures are however showing building cost inflation not seen for some time.
As published by Canstar in June 2021, here are the average new-build prices and the average consented cost-per-square-metre across New Zealand’s regions.
|Average new-build price||Average cost per m²|
|Bay of Plenty||$394,851||$2,564|
Interpreting building cost data
Comparing building costs per square metre
Material choices and labour costs are obvious contributors to cost differences between two houses of the same size. So is the nature of the land it’s built on, such as steep vs level sections. A less obvious influence is the shape of the house. For example, if you compare a 4m x 4m with an 8m x 2m carton, they both have base (floor) area of 16m2. However, the four sides of the square box add up to 16m in length, whereas the rectangular box adds up to 20m. That’s a 25% increase in length of the walls, and their associated building cost for the same floor area.
Comparing regional new-build prices
The average price in a region is affected by the size and type of houses being built. So although it might look like it’s cheapest to build on the West Coast of the South Island, with an average new-build price of $300,553, that may have a lot to do with the size and nature of homes being built there. The same applies to other regions. It’s unlikely that building new is most expensive in Nelson. It’s more likely that the majority of new-build homes in Nelson are relatively larger, more expensive designs.
We’re building smaller homes
Vacant land values
The reported cost of building a new home usually doesn’t include the price of the land it sits on. This makes comparisons with existing homes more difficult. But when you look at valuations for existing properties, the land is escalating in price much faster than the house itself and other improvements.
In June 2021, homes.co.nz published ‘HomesEstimate’ data for vacant section prices in and around three of our main centres. As you’d expect, where demand significantly outstrips supply the prices are particularly high. The median estimate for a section within 5km of Auckland CBD is $1.75m, with one section in Remuera selling for $4m in November 2020. Prices decrease as you move out from the CBD, until you get to the boundaries where section sizes increase significantly.
Here’s the median HomesEstimates for sections in June 2021, with the median section size, at various distances from each CBD.
|Less than 5km||5-10km||10-15km||15-20km||20-25km|
Things to remember when estimating new-build costs
If you want a one-of-a-kind home, the accuracy of any estimate depends on the level of detail used to create it. For a very rough estimate, you can ask a local architect, quantity surveyor or builder for an average cost-per-square-metre. Low-cost homes start from $1,500, but around $2,250 is more common; one-off designed homes are typically $3,000 or more.
Include as much detail as possible
If you’re getting initial quotes from builders based on a sketch design, try to provide a list of what you want included. This not only makes their costing more accurate, it also ensures they’re all closer to quoting you for the same build. It’s about comparing apples with apples.
By the time you get to consent application and detailed design, you’ll have very specific specifications. Using a quantity surveyor at this stage will give you an accurate check that you’re within budget. Fresh quotes from builders will also be more reliable at this stage.
Allow for new-build cost over-runs
No matter how accurate you think your cost estimates are, with a one-off house the reality is bound to be more. Experienced building professionals typically recommend adding 10 to 20% to your budget for cost over-runs. Council, architect and builder costs are almost always more than anticipated. Changes, which always occur throughout the build process to some degree, will also challenge your budget. Each change adds an expense which can be surprisingly high when they need to be re- drawn, re-approved and often rebuilt.
Ways to reduce costs
If it looks like the home you’d like to build is beyond your budget, here are some ways you could make it more affordable.
- Use a group builder – group builders – like GJ Gardner, Jennian Homes, Stonewood Homes and all the other names you’ve seen advertised – offer fixed price builds. They use existing plans, so they know what each costs to build. There’s some room for customisation too, although changes could add to the base price. For a ‘no surprises’ journey to a new home, this is a route many Kiwis choose to take.
- Build a smaller home – this is one of the easiest ways to cut costs and smaller homes are where things are heading, for a wide range of attractive reasons beyond the initial expense. They’re better for the environment and typically cost less to operate and maintain over the life of the building.
- Reduce material costs – choosing less expensive windows, cladding and/or flooring will save you money along with a reduction in finishing costs, such as covering less area in tiles or mirror glass.
- Do it yourself – legally, some work must be done by a qualified tradesperson, but there may be tasks you feel competent to take on. Just be careful to not overestimate your DIY abilities or you could end up paying more than employing a professional in the first place.
- Prioritise inclusions – being clear about must-haves vs nice-to-haves will make it easier to choose features that might have to go to keep things on budget. If you’re building with a partner, taking the time to prioritise things well before the building pressures set in can avoid a lot of unnecessary stress.
Financing your new-build home
When it comes to finance, new-build homes have several advantages over existing homes. Many of these come from government policies designed to stimulate the rate of new home construction.
Here are some potential advantages.
- Lower minimum deposit, usually 10% of the home’s value rather than 20%
- Higher KiwiSaver grants – up to $10,000 rather than $5,000
- Higher eligible house price caps for KiwiSaver grants and First Home Loans
Mortgages for new-build homes
Getting a mortgage for a new-build home is a little different to financing an existing one. The degree of certainty around the final building cost can affect the required deposit and how much a home loan provider is willing to lend. It all depends on the type of construction contract you have, so here’s a brief summary of the main types.
Turnkey construction contract
This type of contract is usually offered by larger home construction companies to provide maximum price certainty for a completely finished home and land package. It will cover the land, house, finishing, driveway and major landscaping. Any estimated costs, known as provisional cost (PC) sums, will be minimal. These contracts attract low-deposit mortgages. You usually pay the builder an initial deposit, but your loan repayments and interest charges don’t start until the property is completed.
Build-only construction contract
This type of contract is usually used if you have bought the section separately and are contracting a builder to construct your new house. It can offer a fixed price, like a turnkey contract, or include estimates for unknown costs. You usually make payments during the build as it reaches certain stages. The home loan provider will approve a maximum final loan and let you draw down the progress payments as the work is completed. They are usually interest-only loans, until the final progress payment is drawn down. A low minimum deposit may still be possible, but becomes less likely as the level of estimated costs rises. This may also affect the amount a mortgage lender is prepared to pre-approve.
Partial build construction contracts
This is used when there are several contractors providing individual quotes and being paid separately. Homes built under these contracts nearly always go over budget. To reflect this, mortgage lenders usually require a minimum deposit of 20% or more and include their own allowance of 10% to 20% for cost over-runs when deciding how much they will lend.
Pre-built and relocatable home construction contracts
This is where an existing home or factory new-build home is moved onto a section you already own. Most mortgage providers will only lend based on the value of the land, and they’ll want a large deposit. Usually they’ll only let you draw down the loan after the house is attached to the land and connected to all services.
Professional advice is essential
If you’re planning to build a new home, it’s very important to make sure you understand exactly what you’re getting. That means setting up a team of experienced advisers you can trust to answer your questions and guide you through the process. Above all, you should never sign anything until your lawyer has seen it and you understand every detail.
To learn more
- Check out our detailed guide to new-build construction loans
- For tips on getting a deposit together and types of mortgages, see our first home buyer’s guide
- For crunching the numbers to see what’s possible, try our handy mortgage calculators
- See our Guide to Buying a second home in NZ
- See our guide to Buying a section or land to build a house in NZ