Small houses 'outperforming' larger ones in Bay of Plenty offer chance to upgrade

Smaller home values have "outperformed" larger home values in Tauranga and the Western Bay over the past five years, with first-home buyers among those creating demand.

Figures released by OneRoof and CoreLogic show the median house prices for two-bedroom homes in Tauranga had increased 65 per cent since 2013 and 71 per cent in the Western Bay of Plenty.

Larger four to six-bedroom homes in Tauranga had also increased but by 56 per cent and 60 per cent in the Western Bay in the same timeframe.

CoreLogic senior research analyst Kelvin Davidson said Tauranga and the Western Bay of Plenty were two areas where smaller house values had "outperformed" bigger houses over the past five years.

He said the figures came down to "better affordability".

"In 2013, two-bedroom houses in both areas were priced below $300,000, and even after the recent growth, their values are still sub-$500,000.

"Whereas the bigger houses are now priced above $750,000 in both areas," Davidson said.

He said it could be seen that a longer-term demographic shift towards smaller households may be playing a role too.

"Particularly if retirees in Tauranga, for example, are downsizing," he said.

Simon Anderson, chief executive of Realty Group, which operates Eves and Bayleys said there had been growth in people purchasing smaller homes locally.

"People are seeing value in smaller homes and this creates demand. Once there's a demand that causes prices to rise," Anderson said.

He said first-home buyers would make up a large proportion of smaller-home purchases as the more affordable prices were a way to get on the property ladder.

Anderson said first-home buyers were generally looking for a renovation they could add value to and it was important to have realistic expectations for a first home.

Rochelle Carter, the owner of Ray White Pukehina, said buyers looking to purchase were focused on price, rather than size.

She said a large number of these buyers were first-home purchasers who were using their Kiwisaver and had a strict lending criteria.

"Consequently they are up to $500,000 buyers and are purchasing the smaller homes," Carter said.

She said the idea of purchasing a small home to extend was an option for some people.

"Kiwis are great renovators and they can visualise their dream. If a small home is on a full section they can extend for the future as they can afford to."

Carter said young buyers now were very conscious of their lending and were well informed.

"Smaller homes are more affordable and do have the options to extend as their families grow."

However, OneRoof editor Owen Vaughan said although all property types had increased over the past five years, prices for four-plus-bedroom homes were relatively cheaper compared to other house types.

"A rising market is a positive for most homeowners, but for those looking to upsize, surging values can be challenging," Vaughan said.

He said homeowners looking to upsize would in most cases be able to secure a good price for their own home in a seller's market but would have to pay a premium for that next larger property.

"In a rising market the gap between the price they'd get for their existing home and they'd pay for their dream home progressively widens, making the move up the property ladder that much more difficult.

"But in a flat or slowing market, there's the opportunity to move up if the value of your next property has grown slower than the value of your current home."

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