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Source: MIL-OSI Submissions
Source: CoreLogic. Analysis By Kelvin Davidson, Chief Property Economist, CoreLogic New Zealand

Across the main centres, the trade-up premium (gap in value between three and four bedroom properties) is at least $150,000 or so, and more than $400,000 in central Auckland. What’s more, the gap has generally increased over the past year, with the largest rise of nearly $60,000 coming in Wellington. In other words, it hasn’t got any easier financially to ‘move up the ladder’ lately, and this is likely to have been one reason why many would-be movers have instead been staying where they are instead of relocating. In turn, that may have blocked access for some first home buyers.

The last time we looked at the ‘trade up premium’ – defined here as the difference in median value between three bedroom and four bedroom properties* – was June last year**, when the country had just moved back down to alert level one. Of course, it’s hardly been smooth sailing since then either, and the oscillating COVID situation (and enforced working from home) has meant that there’s still been a lot of interest in getting an extra bedroom/office space. So how has the trade-up premium changed over the past year?

First, it’s generally been the case around the main centres that three bedroom properties have had faster value growth than larger stock (although also note that growth has been strong in its own right whatever the property type/size). Indeed, as the first chart shows, only Wellington City has seen four bedroom properties outperform three bedrooms in terms of median value change over the past year. The strength of growth for three bedroom houses in Hamilton also stands out.

However, because four bedroom properties simply have a higher starting point for median values, the dollar change for them has generally been larger – resulting in the trade-up premium increasing. Of the key markets covered in the second chart, the largest gap is still in Auckland City (the old central city council area), rising from $381,000 last year to $416,000 now, an increase of $35,000. However, in terms of the change in the trade-up premium, Wellington topped Auckland City, with its gap rising by $59,000, from $164,000 to $223,000.

Tauranga, Christchurch, and Dunedin each also saw the trade-up premium rise by at least $15,000 over the past year, or in other words making it tougher for those who currently want to make their next move. However, Hamilton was stable and Auckland’s North Shore actually saw the trade-up premium fall slightly, by $2,000 (from $286,000 to $284,000). As the third chart shows, the North Shore has actually had a stable(ish) trade-up premium for the past 4-5 years now, which contrasts strongly to Wellington for example.

In a nutshell, it hasn’t got any easier to trade up over the past year, and that’s one reason why existing owner-occupiers (i.e. ‘movers’) are relatively quiet at present (see the fourth chart). In other words, many would-be movers are staying where they are rather than relocating – sometimes because the lack of listings means they can’t find their ideal next place, but also because raising the extra funds required to actually upsize/upgrade can be challenging. That’s both in terms of ensuring 20% equity but also having the income to meet debt serviceability tests on a larger mortgage.