According to the National House Building Council (NHBC) more than 9,300 new homes were registered to be built in Yorkshire and Humber last year – a decrease of 3.2% on 2016 levels of 9,700 dwellings.
Despite the decrease, this is still one of the highest number of new builds in the region since the pre-recession levels of the Credit Crunch and at a time of uncertainty with Brexit and the snap General Election.
So, when a landlord recently asked me why the brand new property she was considering buying was a lot more expensive compared to a second-hand/existing property of similar type, accommodation, location and structure I thought this would make a fascinating topic to do some homework on… homework I want to share with the homeowners and landlords of Rotherham.
Why does a new build cost more than a similar second hand property?
You might believe that the difference between purchasing a new build home against purchasing a second-hand/existing home is just individual preference.
Some buyers/tenants like the ostentatious trendy modern feel of a new home… whilst others like a home that has stood the test of time.
So, why does one usually cost more than the other?
Well, I am going to be looking at some statistics that shows there is a real difference in our local council area’s property market when it comes to new vs existing homes and the price paid.
Looking at the average price paid for existing (second-hand) homes vs a new build makes interesting reading. The graph below depicts these average prices since 1996:
On this second graph, one can see the percentage difference in average price paid between new and existing…
The overall average for the whole Rotherham Metropolitan Borough Council area for the ‘new build premium’ over the last 21 years has been 45.4%. (A new build premium is the additional price a buyer pays for a new property compared to a second hand one.)
Yet nothing is ever that easy – there are issues with these statistics…
Is there really a new build premium in Rotherham?
The problem with statistics for entire geographical areas on this scale is that it is impossible to completely separate all the different factors of type, accommodation, location and structure. This makes them really hard to compare.
For example, for truly indicative statistics, one would have to have a mirror image second-hand Rotherham home and a duplicate new build right next door to each other, then calculate out which house buyers or buy-to-let landlords would pay more for? Perhaps if all things were equal, in that situation there might not be any difference in what buyers would be prepared to pay…?
But then again, properties can often be considered in a similar way to new cars – there’s always a difference in price on the forecourt between a brand new car and a car with a few hundred miles on the clock.
Things are never wholly equal.
What I do know is that my statistics of the Rotherham property market show that new build apartments in our area are worth more to people than their second-hand equivalents, whilst the difference is negligible between new build Rotherham detached houses and second-hand Rotherham detached houses.
However, looking back at the graphs I believe that the really important lesson in all these statistics is the fact that the ‘new build premium’ for new-build versus buying a second-hand property increases in a buoyant market and reduces in a tougher market.
So, if you want to buy new and the only consideration is money… try buying in a tougher challenging property market.