The difference in values between three bedroom and four bedroom properties hasn’t really changed in the past year, and is at least $125,000 in each of the main centres (and more than $350,000 in central Auckland). So it’s still not going to be easy for people who want more space (e.g. to work from home) to trade up, but no doubt those with post-COVID job security and approved finance may well be looking for these opportunities.

The recent enforced period of working from home has caused a lot of people to rethink their living arrangements and we’re certainly hearing many anecdotes of families now looking for bigger houses with extra bedrooms and/or an office.

So what is the value difference to trade up? We’ve looked at this question by calculating the difference in median values between three bedroom and four bedroom dwellings – in other words, a ‘trade-up premium’. To be fair, bedroom count is clearly not a perfect measure of ‘starter’ vs ‘second homes’, or of quality or suitability for each individual/household, but it nevertheless reveals some pretty interesting insights.

Percentage change over past year in median property values by bedroom count (Source: CoreLogic)

Over the past year (since we last looked at this topic), smaller dwellings have generally outperformed larger properties in the main centres, especially in Dunedin (see the first chart). Of course, the broad-based strength of the Dunedin market (at least prior to full lockdown) saw four bedroom properties outperform most segments in the other main centres too. One important factor for general outperformance is simply that three bedroom properties are cheaper, hence more affordable for more people.

Value difference between three bedroom and four bedroom houses
Value difference between three bedroom and four bedroom houses (Source: CoreLogic)

Now shifting to the trade-up premium itself, the figures have actually been relatively stable over the past year around the main centres, although there have been falls in Auckland City (old council area) and Tauranga – in other words, it’s got a little bit easier to move up the ladder in these two markets (see the second chart). By contrast, there’s been a rise in Auckland’s North Shore market, from $230,000 a year ago to $252,000 now. Indeed, households who traded up in the North Shore last year (when the trade-up premium troughed) may have got their timing spot on, as the third chart illustrates.

North Shore trade-up premium
North Shore trade-up premium (Source: CoreLogic)

Overall, the general message is that it still remains pretty expensive to get that fourth bedroom (or study) in many parts of the country, and this could help to explain why ‘movers’ have been relatively quiet lately in terms of their market share for property purchases (see the fourth chart). Of course, already-high debt levels are likely to have played a role too, and given that alterations & additions activity has been buoyant, some are clearly choosing to renovate rather than relocate. This option will also get cheaper/easier given the relaxation of consenting rules around projects such as car ports and sleep-outs.

NZ % share of property purchases (Source: CoreLogic)
NZ % share of property purchases (Source: CoreLogic)

That said, there are always opportunities and as the recession bites harder in the coming months, there may be some ‘bargain’ four bedroom properties available. For those with job security and a loan approval, it could still be a good time to trade up. On the flipside, that also means people thinking about downsizing could be looking to take the opportunity too.