Some real facts about apartments

The Herald has an article about the booming apartment market that really shows that journalists, real estate agents and commentators still don’t understand the industry they are reporting upon.

A property expert explains:

Apartments are not an affordable alternative to rising house prices. The reasons are obvious – if one knows what they are talking about – being:

  1. Houses cost between $1600 psqm and $2500 psqm to build on average;
  2. Apartments cost $2600 psqm to $4000 psqm to build on average;
  3. A 200 sqm house will retail for $400,000 plus land for $700-800,000 in Auckland (depending on the built spec);
  4. An 200 sqm apartment will retail for $1.8m to $2.4m. Land is such a fractional cost but inclusive;

Apartments are typically in heavy structured buildings with massive cost to provide car parks, lobbies, hallways, fire egress, lifts etc. they are very expensive to build.

Houses are by comparison very cheap to build. ??

Houses offer ‘value’ by providing more for one’s money – such as size, yard, etc.

The ignorance shown by journos, realtors, and commentators assumes that the end sale cost is everything. They see apartments selling for $300,000 and assume that compared with the average house at $700,000 or a new house at $800,000 that it is therefore more affordable.

No it is not.

On a $ per sqm an apartment will retail new for $6,000 to $10,000 psqm plus car parks. If one does the math – an apartment of $300,000-450,000 is a very small dwelling and will attract the additional cost of car parking.

Overheads on an apartments include rates and expensive body corporate fees. These diminish the buying power of a purchaser who (whether owning a home or apartment) will have a limit to what they can use to service the cost of housing. Less money due to high body corporate costs will mean less they can borrow.

And lastly banks expect much larger deposits on apartments than on a house.

There is a reason why our building industry has been fixated on houses over apartments. Year on year construction figures for apartments versus houses has house construction vastly outweigh apartments. Even in the boom years of 2002-2007 housing ruled by a significant margin.

Buyers know that apartments are not value compared with houses. So how come journalists, realtors and commentators don’t understand this?

Good thing the National Government does.