New Homes vs ‘Second Hand’ Homes in Derby… is there a Price to Pay?

According to the National House Building Council (NHBC), more than 14,400 new homes were registered to be built in the East Midlands last year, an increase of 18.7% on 2016 levels of 12,200 dwellings. Great news when you consider it is one of the highest number of new builds in the region since the pre-recession levels of the Credit Crunch and the uncertainty of Brexit and the General Election.

So, when a landlord recently asked me why the brand-new property she was considering buying was a lot more expensive compared to a second-hand/existing property of similar type – accommodation, location and structure – I thought this would make a fascinating topic to do some homework on… homework I want to share with the homeowners and landlords of Derby.

The ‘New Build Premium’

You might believe that the difference between purchasing a new build home against purchasing a second-hand/existing home is just individual preference. Some buyers/tenants like the trendy modern feel of a new home, whilst others like a home that has stood the test of time.

So, what is the right answer? Well, I am going to be looking at some statistics that shows there is a real difference in the Derby City Council area’s property market when in to comes to new vs existing homes and the price paid.

Looking at the average price paid for existing (second-hand) versus a brand new home since 1996, one can see from the graph it makes interesting reading:

On this second graph, one can see the percentage difference in average price paid between new and existing…

Like for Like

However, comparisons of this type are never that easy, as there are obvious issues with these statistics.

The overall average for the whole Derby City Council area for the ‘new build premium’ (new build premium being the additional price a buyer pays for buying a new property compared to a second-hand one) over the last 21 years has been 48.7%. These statistics actually show that it is problematic to compare like with like because it is impossible to completely separate all the different factors of type, accommodation, location and structure etc.

One would have to have a mirror image second-hand Derby home and a duplicate new build right next door to each other, then calculate out which Derby house buyers or Derby buy to let landlords would pay more for? Perhaps if all the criteria was the same, there might not be any difference in what buyers would be prepared to pay! But then again, it’s like new cars versus cars that have a few hundred miles on the clock… there is always a difference on the forecourt… because things are never wholly equal.

So, What Does it Show?

What I do know is that my statistics of the Derby property market show that new build Derby apartments are worth more to people than their second-hand equivalents, whilst the difference is negligible between new build Derby detached houses and second-hand Derby detached houses.

However, I believe the really important lesson in all these statistics is the fact that ‘new build premium’ for new-build versus buying a second-hand property increases in a buoyant market and reduces in a tougher market.

You can clearly see that in the period prior to the housing crash of 2007/2008, the ‘New Build Premium’ was at it’s highest. However, post housing crash the premium has diminished massively.

It seems to me that if you do want to buy new and the only consideration is money… try buying in a tougher challenging property market!

I love looking at and dissecting the Derby property market so, if you want to discuss anything at all, please contact me on 07977 235545 or drop me an email at: derbyblog@professionalproperties.co.uk.

Simon