This surge, especially in Auckland and Christchurch, makes investors nervous about oversupply.

Why is that? Because, when there’s too much supply of any property type (compared with demand):

• House prices don’t rise as fast
• It’s harder to find a tenant (they have so many rental options)

An oversupply could leave investors stuck with properties that don’t grow in value and can’t generate a strong yield.

#2 – Townhouses have less land (and isn’t it the land that goes up in value?)

You often hear the saying: “It’s the land that goes up in value, not the building.”

So some investors think: “If a townhouse only has 70-120m² of land, and a standalone house has 350-500m² .... then surely the house should grow in value much faster?”

It’s a fair question. Here’s the logic people use:

• In a townhouse maybe the land makes up 25% of the property’s value and the building makes up the other 75%.
• In a standalone house maybe 60% of the value is the land and 40% is the building.
• If only the land truly increases in value over time, then houses should go up in value faster than townhouses.
• And therefore houses are the better investment.

Now, looking at the data, it’s not true that more land = faster house price appreciation. There’s more to the story. 

Having more land makes your house more expensive, but it doesn’t necessarily make the house double in value faster.

But some investors still believe that it’s the land that goes up in value, and this is one of the points made when people argue that townhouses won’t go up in value as fast as a house. 

#3 – Kiwis are used to living in houses

The Kiwi dream is to own a quarter-acre section (roughly 1,000 square metres of land).

And the average Kiwi home has traditionally been a standalone 3-bedroom house.

Most townhouses have less than 150sqm of land, so they don’t fit the traditional idea of what Kiwis aspire to own. 

More from Opes:

• Are there too many townhouses in New Zealand? (Article)
• Houses vs townhouses vs apartments - Which goes up in value faster? (Article)
• Properties in the future – What will we want in 2034 (Podcast)

#4 – What happens when the new townhouses aren't new anymore?

Another argument is that most townhouses are new, so what happens when those townhouses age over time?

Sure, new townhouses are popular today … but what about in 10-15 years? Will older townhouses struggle to compete with newer builds?

Standalone houses often benefit from renovations or land value appreciation over time. You can give an old home a facelift or build on the back garden. But there’s less room to play with when it comes to townhouses.

Arguments for strong townhouse growth

Now that we’ve taken a stern look at the arguments against townhouses going up in value, let’s take a fair look at the other side.

#1 – Townhouses are affordable

Everyone can see that townhouses are being built. 

What’s less obvious is that people are buying them. And the reason is simple: standalone houses on big sections have become too expensive.

House prices have increased faster than incomes, so many Kiwis are priced out of traditional homes. 

When you can’t afford a house you look for something that’s within reach.

For many buyers that’s a modern townhouse. For others it might be an apartment or a house further out from the city. But the point is the same – affordability shapes demand.

As houses get more expensive compared to incomes more people will want what they can afford. 

That’s why it’s likely townhouse demand won’t just hold steady … it will grow as property prices rise.

We’ve seen similar trends in the past. In the 1970s and 60s, many people built brick “sausage flats”. These days they are known as units. 

These properties are still attractive for renters and home buyers because they are more affordable than larger standalone houses.

#2 – New Zealanders don’t need as much space

Kiwi families are getting smaller. We’re having fewer children (22% of New Zealand houses have just one person living in them - 2023 Census).

We don’t need as much space or as many bedrooms, so the houses we need are changing. That means less demand for bigger homes and more demand for smaller, higher-quality homes.

We call this a move to “compact quality”.

Modern townhouses are all built to contemporary tastes and standards. They also have modern features like double glazing.

The townhouses you see being built represent less of a building boom and more of a shift in how Kiwis (at least in larger cities) choose to live. 

#3 – Our population is growing

We need to put people somewhere.

As more people move to New Zealand (and into NZ cities) houses are being built closer together to fit everyone in.

It wasn’t that long ago a million people were living in Auckland. Now, there are 1.7 million.

Many moving to NZ are from high-population countries – China, India and the Philippines. 

It’s more likely that more of these people are used to living in apartments and townhouses (at least compared with Kiwi-born New Zealanders). So these new New Zealanders add to the demand for townhouses.

#4 – Kiwis already choose to live in close proximity for the right property

You sometimes hear the argument: “Kiwis don’t want to live close together.”

And yes, townhouses do bring people closer together than the traditional quarter-acre dream.

But if that were really true some of NZ’s most expensive suburbs wouldn’t look the way they do.

Take Herne Bay or Parnell. The land has become so expensive that multi-million-dollar homes are packed close together on small sites. 

People live almost side-by-side and yet these suburbs have seen some of the strongest capital growth in the country.

Why? Because ultimately home buyers care more about the house than the backyard. 

And that’s because you do all your living, cooking and sleeping inside the house. So this is an example where wealthy Kiwis are choosing to prioritise location and house quality over section size. 

And this isn’t just theory – it’s how people already live.

In my own suburb someone subdivided the original site years ago. I live in the front house; someone else lives in the back. The sections are small, but the homes work for the people who live in them.

Townhouses vs houses: what goes up in value faster right now?

Historically, townhouses and standalone houses in New Zealand have increased in value at a very similar rate.

When you look at this graph you first notice how similar the two lines are.

Existing properties go up and down in value roughly the same rate as new ones.

Yes, there is a slight difference in favour of existing property.

When you average it out, existing properties beat New Builds by about 0.6% per year (in this example).

That means if existing properties increased 8% per year, New Builds rose 7.4% per year.

There’s very little in it.

But what will happen in the future? We don’t know exactly yet as the future has yet to happen.

Based on the arguments you’ve heard what do you think will happen? Let me know down in the comments section.