Tax Changes and Construction Downturn Expected to Shrink Price Gap Between New Builds and Existing Properties in New Zealand

Date Published: 28 March 2024

Key Facts

• New builds are typically 6 percent pricier than existing properties.
• The price gap between new and existing properties is expected to diminish due to less favourable tax rules for new developments.
• New builds previously benefitted from an exemption from bank lending restrictions and were subject to a shorter brightline test.
• CoreLogic NZ predicts a potential decrease in demand for new builds due to tax changes and a decline in the construction sector.
• Challenges for developers in securing pre-sales for new projects may hint at near-term discounting.
• Despite potential decrease, there continues to be demand for new houses because of their superior quality insulation and lower maintenance costs.

Article Summary

The distinction in price between new builds and existing houses, generally a 6% increase for new properties, is anticipated to narrow as tax rules become less encouraging for new developments. This is predicted in a report by CoreLogic NZ, which indicates a potential shift in demand due to drying up tax incentives. New builds have enjoyed an edge over existing dwellings in recent times because of an exemption from bank lending restrictions and more attractive tax conditions.

However, CoreLogic NZ’s chief property economist, Kelvin Davidson, suggests that the benefits of new constructions may begin to decrease within the next couple of years, as a result of tax changes and the decline of the construction sector. Factors such as a slowing in building work and flatter construction costs are likely to cool new build pricing.

Davidson warns that reduced demand for new build development could have wider implications for the housing market. He emphasises the need for more new builds to cater for population growth and to manage housing affordability. At the same time, he anticipates the price gap in the new-build market might shrink, as securing pre-sales for new build projects becomes challenging, acting as a possible indicator of near-term discounting.

Davidson also notes that a rise in the number of listings might enable prospective house buyers to find what they are looking for among existing stock, lessening the need to buy or build a new property. Nevertheless, he expects a continuous demand for new builds due to their superior insulation quality and lower maintenance costs.

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