Too Many Two Bedroom Townhouses?

How long have we been hearing about the housing shortage in New Zealand for? Five, ten years? Not quite, try nearer 40! Think back to 1987 – the year the stock market crashed and the year the ‘everyday landlord’ was born! Investors in the stock exchange made losses so extreme that it turned an entire generation of investors from shares to property. And as the property investment category grew in popularity, local councils also introduced barriers to infill housing to protect neighbourhood’s character resulting in the conception of our housing shortage!

But how is this relevant to us today?

We still have a housing crisis; house prices are rising; less new homes are being built, and our population is increasing year-on-year. So, why is this so hard to fix? Isn’t the solution just to build more homes? Housing is expensive, it’s time consuming to construct and housing is permanent (in the scheme of our lifetimes), so while more housing = good, we need the right housing to resolve our shortage now and into the future.

To be clear, we could build a million two bedroom townhouses and our “housing shortage” would be over from purely an accommodation perspective, and in many ways that would be a good thing – but the purpose of this article is to advocate for considered construction and sound purchasing decisions.

I’m no financial adviser (and it needs to be said this isn’t financial advice, just a research driven sensibility test) – but I believe if you’re looking to invest your capital into a property to rent out or live in, it’s important to get the product type right. A product type well and truly past saturation point is no good, regardless of how you look at it. Remember Spain back in 2008? It doesn’t matter if you got an ‘absolute steal’ on your new 2-bedroom townhouse, if you can’t sell it in ten-year’s time because there are hundreds of identical townhouses sitting unsold in the 2-bedroom product category, that’s not a smart investment.

So, are we building too many 2-bedroom townhouses? Let’s look at Christchurch– it’s always had a higher density of townhouses than other cities; 2-bedroom townhouses make up 24% of housing stock in the city, they’re a mix of older flats in the Central City and surrounding suburbs, and a massive number of new units. In 2024 one in four new homes built in Christchurch was a townhouse, which sounds consistent with historical stock levels, but this isn’t existing stock being replaced – it is largely new townhouses being built where standalone homes have stood. Do you see my point? 24% of existing stock plus a quarter of new homes adding to that number and we have a trajectory towards 2-bedroom townhouses making up an increasingly large portion of overall housing stock in Christchurch.

This isn’t to say we should stop building 2-bedroom townhouses – they have a place thanks to their affordability. However, the mistake we want to help our clients to avoid making is being sold the dream of a shiny new home that is really a sub-par product. The commercial leasing market is being dominated by a “flight to quality” trend, and as townhouses reach oversupply, tenants will do the same in this market.

For many people a one or two-bedroom townhouse is the only attainable property investment due to price, and that’s perfectly fine, we still believe there are developers building quality townhouses in good locations that make good investments. We’ve recently worked with a young Christchurch couple to secure their first newly completed investment – a 2-bedroom townhouse in the heart of the central city. The complex stands out with design that should age well, quality finishing in a fabulous location, and equally as important, it’s not a shoebox. These key elements are what we look for when assessing a purchase and when the dust settles and there are more townhouses than demand for them, it is homes like these that tenants will choose first.

Call Venning Property to help you secure an investment that will stand the test of time and demand.