Property investors and homeowners in New Zealand have long accepted as fact that standalone houses are a safer investment than townhouses, apartments will struggle in a downturn, and high-value suburbs hold their value better than the rest of the market. But do the numbers actually support those beliefs?
Matt Edginton, Valuations Director at Prendos, examines the last decade of data to compare how different residential properties have performed through boom and downturn conditions, and the results may surprise you.
The market is down, but not everywhere
It’s no secret New Zealand’s residential property market is sluggish. Cotality’s latest Home Value Index shows national values down 0.3% in September, the sixth consecutive monthly decline. Over the year, values are down 1.3% nationally. Auckland and Wellington are leading the slide, down 3.2% and 3.1% respectively, while the South Island centres are faring much better, with Christchurch up 3.4% and Dunedin up 2.1%.
I’ve been interested in finding out whether one type of home performs better than another. The narrative I often hear is that new build townhouses are dragging the market down. That the market is declining because townhouses and apartments have no appeal, while traditional standalone homes are doing just fine.
I’ve also always been told that lower cost areas are hit harder in a downturn, whilst higher value suburbs weather the storm. On the face of it, that makes some sense. Those in wealthier suburbs, typically owner occupiers, enjoy better job security, rely less on lending and are less likely to be forced to sell in a bad market. So prices hold up.
But is any of that actually true?
Do some housing types perform better than others?
The chart below shows price growth over the last 10 years for the major residential property types – residences (freestanding homes), townhouses, apartments and units (generally older attached units).
For the five years before the pandemic, prices moved in lock-step. Whether you owned a residence, an apartment or a townhouse, there was no real difference in price growth.
The great divergence after 2020
Since then, the divergence has been huge. At the beginning of 2020, the median price gap between a residence and an apartment was roughly $50k. Now? It’s almost $250k.
The chart below shows the same data in relative terms: the value of $100 invested in each property type in 2016, through to today.
$100 invested in the median residence is now worth almost $160, having peaked at $185. In the median townhouse it’s worth $145, and in the median apartment just $115. Huge divergence. But from 2016 to 2020, the divergence was zero. All of it has occurred since 2020.
This is partly a mix thing. The large majority of apartments are in Auckland, which has been one of the weaker markets. But there is a chicken and egg question here – is Auckland underperforming because it has so many apartments and townhouses? Or are townhouses and apartments underperforming because they are in Auckland?
The Auckland story
Here is the Auckland chart:
Sure, residences are way down from their peak, but they still sit well above 2017 levels. The median sale price for an Auckland residence was $920,000 in June 2017 and $1,080,000 in June 2026, growth of 17%. Compare that to townhouses and apartments. We don’t even need the numbers, because the lines are pretty clear – there is no growth. Worth noting, even Auckland residences haven’t exactly seen explosive growth – 17% over nine years is an annualised rate of about 1.8%, so they’ve way underperformed inflation.
So far, the conventional wisdom appears mostly true. Residences have outperformed townhouses and apartments, and if capital growth is your goal, standalone homes have been the better investment. But since the market peak, things get more surprising.
What happened after the market peak?
All of the difference in performance between property types was generated over a 16 month period, from July 2020 to November 2021. As I’ve said, the divergence from 2016 to 2020 was zero. More interestingly, the divergence from the November 2021 peak to today is also zero.
From July 2020 to the peak, residences rose 42%, townhouses 30% and apartments just 15%. This chart from Cotality shows how houses and townhouses have performed since the peak.
I was surprised to see they’re both down by almost exactly the same amount. Cotality didn’t include apartments on this chart, so I did the numbers myself – they’re down about 23% from the peak too.
The downturn myth
In a down market, the type of home you own makes no noticeable difference to price. All of the outperformance from owning a residence was generated in a hot market. So if price is the gauge, it simply isn’t true that townhouses or apartments are worse off than standalone homes in this downturn.
Does up-market property hold its value better?
Another narrative is that the high end of the market is less affected by a downturn. The numbers bust that one too.
This chart from Cotality breaks the national market into quartiles. Lower priced property has held up much better than the top end, which has fallen the most.
I was surprised by both charts. I would have guessed townhouses had been hit far harder than standalone homes in the downturn. And I confess I believed the narrative that higher end property holds its price better.
So what’s behind these numbers?
First home buyers driving the trend
First home buyers are by far the strongest part of the market, and they naturally favour lower price points. They’re also the main buyers of townhouses. That is a level of demand the “movers” category just isn’t providing.
Transaction numbers are down overall, and movers account for their lowest share of transactions since the GFC. People aren’t upsizing or moving up through the price brackets like they used to. Maybe they haven’t been able to build enough equity in their first home for a larger deposit. Maybe their earnings haven’t increased enough, or the cost of living has eaten into any increases, leaving less for a more expensive home.
How developers are responding
I think developers have got the message too. Yes, a ton of townhouses are still being built, particularly in Auckland. The chart below shows new dwelling consents have turned back up and sit well above historical averages, and the share of “small dwellings” is near a record high.
But we’re seeing the density of new projects decrease, designs improve, and sites that should never have been development sites no longer being developed. During the peak there was a rush to develop any site that technically could be, often with little thought given to the end product, because developers were confident anything would sell.
Those conditions no longer hold. Buyers have all the power now, so developers need to offer a product people want, and one that is better than the development they are competing with down the road. In general, I think the response has been quite positive. It’s not unusual now to see townhouse specifications well above those of a few years ago. Developers are often sacrificing a site, going from say eight lots to seven, so the remaining lots are larger with more outdoor space. Freestanding townhouses also make up a much higher proportion of consents than a few years ago.
So the product is getting better (generally speaking anyway – there are still some bad ones out there!) and first home buyers are the most active group. Together, these forces are helping the cheaper end of the market outperform, and townhouses hang in there relative to standalone homes.
Other factors at play
Other market factors influencing performance could include:
- Debt-to-income (DTI) restrictions, in place since July 2024. The 6x income cap hits hardest on high-value purchases.
- Buyers might be trading down. The boom opened up a wide price gap between houses and townhouses, making townhouses relatively good value for stretched buyers.
- Land is the volatile part of value, and upper-quartile property typically comes with more of it. Lower-priced property and townhouses sit closer to replacement cost. With build costs well up since 2020, new supply can’t be delivered much below current prices, which puts a floor under them.
- A shrinking buyer pool at the top. This end of the market has been hit by higher earners leaving for Australia and public sector cuts in Wellington, and is more sensitive to business confidence.
So, which type of property performs best?
Over the last decade, the answer is the standalone house. But almost all of that outperformance was earned in a single 16-month window, from mid-2020 to late 2021, when cheap credit pushed buyers towards land and space. Before that window, every property type moved together. Since then, they have all fallen by almost the same amount.
Price point tells a similar story. The lower quartile hasn’t just held up better in the downturn, it grew faster on the way up too. The idea that expensive property is the safer store of value simply isn’t supported by the recent numbers.
So the answer is that property type matters far less than the market conditions you buy and sell in. A standalone home pays off handsomely when the market runs hot, but offers no extra protection when it turns. Lower-priced property has delivered steadier, if less spectacular, results.
For anyone weighing up a townhouse against a house today, the real question isn’t which one performs best. It’s whether you think the conditions of 2020–21 are coming back. And I don’t know that anyone is picking that.
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