Are homes with bigger backyards more valuable?

ANALYSIS: Head to a Kiwi barbecue, and you’ll often overhear people talking about property. You might hear people say things like: “Buy land. They’re not making any more of it”. Or perhaps: “It’s the land that goes up in value, not the house”.

The assumption is that properties on large sections tend to increase in value faster than those on smaller sections. But new data suggests that’s not always the case.

Figures from property insights firm CoreLogic certainly show that properties with more land are more expensive. In Auckland City, the average value of a property with more than 300sqm of land is $1.17 million. For properties with mid-size sections (between 300sqm and 599sqm) the average value is $1.54m, while properties with larger sections (600sqm-plus) have an average value of $1.68m.

But the picture isn’t so clear when it comes to capital growth.

During the boom years, Auckland properties on mid-size sections spiked in value, but post-market peak growth rates have been subdued.

The striking difference is in value growth rates between smaller and larger sections.

In the five years to April 2024, the average value of smaller properties has grown 4.6% a year, while larger properties have grown in value by only 3.6% a year.

In Christchurch, the difference between the growth rates of smaller and larger properties is barely noticeable.

So why might properties with less land rise in value at a quicker or similar rate to properties with more land?

Properties with less land tend to be more affordable. As property prices increase, demand for smaller-sized properties will likely increase. Perhaps Kiwis are switching from larger, expensive properties to smaller, affordable ones.

The other thing is most people don’t buy a house for the land. Think about the last time you went to an open home. Where did you go first? Inside the house or out in the backyard?

Opes Partners resident economist Ed McKnight: "Buy the house that fits your needs." Photo / Fiona Goodall

If you’re like most people, you go into the house first and spend most of the time there. The house and the location are the two factors people assess first. The size of the backyard is almost secondary.

What’s the main takeaway for property buyers? Buy the house that fits your needs. Don’t pay for more land than you need simply because you think it will be a “good investment” as there’s not a lot of evidence that buying properties with more land gives you a bigger return.

If you want a big backyard for your kids, that’s great. But, in financial terms, that bigger backyard might not make as much difference as you think.

- Ed McKnight is the resident economist at property investment company Opes Partners