House depreciation

sdraobs

Anyone got any thoughts on the rate of depreciation of a house.

im deciding whether to buy a new or second hand house. A new house will have a 20 year guarantee, but i realise it will depreciate quickly, like a car. For example a new kitchen/floor will not be to everyone's taste.

But an older house will have more problems, but wont depreciate as quickly. For example, the 20 year guarantee will have expired so assume depreciation is slower.

Thanks

aloooof

Not quite sure what you mean. In general, over the long term (you mentioned 20 years) houses appreciate, not depreciate.

john kinsella

I've never heard of a 20 year guarantee on a new house. If it is homebond or the likes you are referring to they are not worth the paper they are written on for what they actually cover and only last 10 years

loyatemu

Is this a serious question? House prices have very little to do with the age of the house - location, condition, and general market trends are much more important factors. They don't "depreciate" in the way that cars and other disposable assets do.

sdraobs

okay, good points John Kinsella and alooof.

Suppose land values stay constant, do you have views on the rate of house depreciation. I could imagine a new house today being worth alot more than a 100 year old house that needs to be gutted.

My point on a new house, homebond, is that someone would feel more comfortable buying a house with a new roof that is likely to last 10 years than an old house for which there is likely to be leaks, or a bigger threat of a leak.

maybe my thread is pointless. but just wondering if anyone could share any views.

witchgirl26

There's not really depreciation on houses privately in Ireland. Realistically it's a market based item so you could buy a house, have the market crash and it's worth feck all or buy a house, market improves and it's now worth loads. It's not something that you can do linear depreciation on. In terms of kitchens for example - put in whatever is to your taste and realistically when you come to sell, the people buying will want to put their own stamp on it and will probably change it.

TheBoyConor

You've got it all wrong.

Houses don't depreciate, the rise in value generally speaking.

Sure a house that has gone to wrack and ruin through neglect and being unoccupied will drop in value compared to a similar nearby house maintained in habitable condition, but that would be relatively infrequent.

sdraobs

loyatemu wrote: »

Is this a serious question? House prices have very little to do with the age of the house - location, condition, and general market trends are much more important factors. They don't "depreciate" in the way that cars and other disposable assets do.

well condition is quite linked to age of a house, so i think you are contradicting yourself in your statement above. So you are proving my point, does a condition of a house deteriate much faster in a new house than an old house.

Franz Von Peppercorn

sdraobs wrote: »

okay, good points John Kinsella and alooof.

Suppose land values stay constant, do you have views on the rate of house depreciation. I could imagine a new house today being worth alot more than a 100 year old house that needs to be gutted.

My point on a new house, homebond, is that someone would feel more comfortable buying a house with a new roof that is likely to last 10 years than an old house for which there is likely to be leaks, or a bigger threat of a leak.

maybe my thread is pointless. but just wondering if anyone could share any views.

Irish people tend to want to buy, when rich, in established areas. Far from older houses losing value they tend to retain value better than new builds.

Lumen

The main issue currently driving depreciation of new houses is government incentives targetting new builds and first time buyers.

Besides that, depreciation is less of an issue than maintenance costs. When I bought a new house in 2004 I did absoliutely zero maintenance on it in the 12 years I lived there. Nothing. Now I have an older house, and it's a total moneypit.

loyatemu

sdraobs wrote: »

well condition is quite linked to age of a house, so i think you are contradicting yourself in your statement above. So you are proving my point, does a condition of a house deteriate much faster in a new house than an old house.

an unmaintained house will obviously be worth less than an identical house that is well maintained. Your general question is virtually unanswerable - you could write a book on why one particular house is worth more than another.

You could have brand new A-rated house next door to a well maintained 100 year old Edwardian house, the period house could well be worth more because it has more character and there's more demand for that type of dwelling, there's no simple answer to your question.

If you're asking about maintenance costs rather than depreciation, yes they will probably be less in a newer building.

You are starting from the premise that houses lose value.
They (over the long term and barring random things) don't lose value - they will generally appreciate in value.

What you are probably feeling is that everything else gets more expensive overtime so a house that was built 40 years ago cost less than one built today.

What they are worth is somewhat separate from what they cost - no one is going to build a house for 250,000 and then sell it for 100,000. Equally someone who built a house for 25,000 in 1980 is going to use that to value it.

Housing even houses that are hundreds of years old will generally still be usable as a house.
A hundred year old car on the other hand is for a museum.

witchgirl26

sdraobs wrote: »

well condition is quite linked to age of a house, so i think you are contradicting yourself in your statement above. So you are proving my point, does a condition of a house deteriate much faster in a new house than an old house.

Not necessarily - it's not about the age of a house but the quality of the build. For example, an estate near my mam. Some houses built in the 70's, some in the 80's. The ones from the 70's were better built than the 80's ones and therefore in better condition. However you can't use that as a rule of thumb as my mam's was built in the 70's and isn't in great condition as not as well built as others in the area.

sdraobs wrote: »

okay, good points John Kinsella and alooof.

Suppose land values stay constant, do you have views on the rate of house depreciation. I could imagine a new house today being worth alot more than a 100 year old house that needs to be gutted.

My point on a new house, homebond, is that someone would feel more comfortable buying a house with a new roof that is likely to last 10 years than an old house for which there is likely to be leaks, or a bigger threat of a leak.

maybe my thread is pointless. but just wondering if anyone could share any views.

Houses as a thing do not depreciate and you can't seperate them that easily from the land they sit on as you can't buy the house without the land generally (or at least having a leasehold on the land).

While the older house in your example might need renovation it would have a premium for where it is and also for being a historical building etc that would entice people. A new house is fairly standard type thing and a lot of people don't like that.

But an older house might have just had a new roof fitted that's actually newer than the roof on a new house. Just because the actual building itself is old, doesn't mean that the windows, roof etc are inferior as they may have all been updated. That's why asking those questions is important at viewings of older houses and you can revise offers based on what might need a lot of work doing.

Franz Von Peppercorn wrote: »

Irish people tend to want to buy, when rich, in established areas. Far from older houses losing value they tend to retain value better than new builds.

Exactly - new houses tend to be in "upcoming" areas that are not as established with all the amenities that people like. While older houses may need more work, they have all these added extras such as shops, transport links etc that are well established.

sdraobs

Lumen wrote: »

The main issue currently driving depreciation of new houses is government incentives targetting new builds and first time buyers.

Besides that, depreciation is less of an issue than maintenance costs. When I bought a new house in 2004 I did absoliutely zero maintenance on it in the 12 years I lived there. Nothing. Now I have an older house, and it's a total moneypit.

thanks Lumen, you understand my question and provided some point.

One of the things i am trying to figure out is if i should get an older house, save money on being cheaper, but having the maintenance costs for 12 years. And how much of a moneypit will the house be. i think houses, well the buildings depreciate as a new owner knows they will have maintenance costs that they wouldnt have on a new house.

Graham

Properly maintained housing tends to be an appreciating asset in Ireland.

TheBoyConor

The three most influential factors in the value of a house are location, location and location.
The condition of the main elements of the building would have a varying influence on the value, eg if the roof was in need of replacement or if there were serious subsidence or foundation failure it would obviously have a significant but varying imfluence.

The condition of fixtures like kitchens or bathrooms or decor would have only a very negligible bearing on value unless they are really new and really, really high end fittings, but that isn't common.

seamus

sdraobs wrote: »

well condition is quite linked to age of a house, so i think you are contradicting yourself in your statement above. So you are proving my point, does a condition of a house deteriate much faster in a new house than an old house.

You're mixing up a lot of stuff here, and you're not really clarifying what the question is that you're asking.

Depreciation is the drop in value of an asset due to age-related wear and obsolescence. A car depreciates in value because it continually wears down and technology moves on such that a ten year old car is less efficient than a newer one. And over time there is no amount of maintenance you can do to keep its original value - unless you buy the car at its scrap/base value.

Depreciation assumes that you maintain the asset as fully as is practical. Of course if you don't maintain your car, it will depreciate faster. But as a rule, when you calculate depreciation, its assumed that you will maintain it.

So when it comes to a house, it's different. A maintained property does not depreciate in any real way. Inflation-adjusted when you sell the property in 20 years time you will get the same amount for it that you paid for it. The value of other property is actually irrelevant.

James Bond Junior

Houses don't tend to depreciate as such unless there is a slide in the market which, Brexit notwithstanding, isn't hugely likely in this country in the short to medium term as supply generally is not able to keep up with demand. Really and truly the house's condition, location and market forces dictate the value.

sdraobs

okay, thank you all for your contributions.

I think you answered my questions, though i probably should have thought it out better.

I am understand that houses dont really depreciate by any meaningful value as the other constants (location, market, level of maintenance)
Maybe this is different in places like japan where houses have to be rebuilt after a few years. What i am getting from our views is that houses will maintain their value.

Thanks again

sdraobs

Though it doesnt really help me in deciding whether to go with a 20 year old house or pay about 50k extra for a new build in the area i am looking. maybe its just personal choice.

James Bond Junior

sdraobs wrote: »

Though it doesnt really help me in deciding whether to go with a 20 year old house or pay about 50k extra for a new build in the area i am looking. maybe its just personal choice.

Factor in redecoration costs or any other money needing to be spent. 50k can get swallowed up pretty fast.

seamus

sdraobs wrote: »

Though it doesnt really help me in deciding whether to go with a 20 year old house or pay about 50k extra for a new build in the area i am looking. maybe its just personal choice.

In twenty years time both properties will be worth what you paid for them.

So ignore depreciation and look at more immediate factors like upfront maintenance costs.

As JBJ says, a 20 year old house in poor condition may quickly swallow up that €50k if it needs significant work, and that's €50k you won't get back.
Where the newer house will need nothing major done for about a decade and you will get your €50k back when you sell it.

sdraobs

seamus wrote: »

In twenty years time both properties will be worth what you paid for them.

So ignore depreciation and look at more immediate factors like upfront maintenance costs.

As JBJ says, a 20 year old house in poor condition may quickly swallow up that €50k if it needs significant work, and that's €50k you won't get back.
Where the newer house will need nothing major done for about a decade and you will get your €50k back when you sell it.

Well looking at your logic Seamus, is it more accurate to say you will get what you paid for less 50k as a new purchaser will factor in the 50k they need to update it. Accept there are so many other constants, land price, tax, stamp duty, population, etc that this is just academic.

Since my attempts at rationalising the decision have come up trumps, i think ill go with an older house in a more mature area, and feck it if its worth less, or costs more in maintenance.

thanks again

ELM327

Over the medium term (7-10 years+) houses do not depreciate, they appreciate.

DubCount

OP. I understand your question. Most assets "waste" over time. The value of a new car reduces and reduces until the value is basically scrap metal. Most assets are like this, but Houses are not. In 20 years time, a house will still function as a house in much the same way as it did when it was bought. There is an ongoing maintenance cost for all houses, and over the course of 20 years maybe the heating, electrics, kitchen, decoration will need refreshing, but the land, the location and the building itself will pretty much stay as they were when new. Some older houses will have a deficit in some of these maintenance areas, that you may need to/want to address. Some will be recently renovated and be at the same starting point as a new house. So long as you have a surveyor report to say that the house is sound, the fundamentals will not differ from new to old houses.

Moonjet

Another point to consider is new builds generally have management fees (sometimes €1,000+/year and can be increased any time - it's largely out of your control), whereas the house built in private estate 20 years ago won't. It almost cancels out the maintenance costs of a 20 year old house, and unlike the management fees at least maintenance on your house is optional.

Back to the point though, as has been said numerous times on here - all property generally appreciates in value over medium/long term. There's a reason that now (and throughout history), wealthy people usually own multiple properties as part of an investment portfolio.

antoinolachtnai

Land does not depreciate but buildings certainly do. You will come across 100 year old buildings that are worth almost the same as a new building, but this is because the owner or tenant has reinvested. Rewiring, new roof, etc are all investment in the building.

I would say that buildings depreciate over 50 years. Over that period, the reinvestment is probably equal to the original cost of the building. You could argue that for some buildings it’s longer. But very few buildings last more than 100 years without at least one major round of reinvestment.

witchgirl26

sdraobs wrote: »

Though it doesnt really help me in deciding whether to go with a 20 year old house or pay about 50k extra for a new build in the area i am looking. maybe its just personal choice.

OP there are a lot of other factors to consider. I'd agree with the others in terms of understanding the level of the older house in terms of if the windows, kitchen, bathrooms, insulation and roof have been replaced and when. That will give you an idea of areas of large expenditure that you will have to fork out and whether they are a need to do now or can be put off for a couple of years.

In terms of the new build - don't be fooled. There are a lot of costs associated with a new build that you don't always factor in. Generally most do not come floored so you'll need to sort that out quick enough. Appliances will often not be supplied (whereas with older houses you may get some that will do until you can afford to replace), furniture needs to be purchased etc. It different costs and the price on new builds is generally non-negotiable. So while you can use the potential repairs for an older house as a bidding tool, you can't use all those extras for a new build to get anything off.

Fian

sdraobs wrote: »

Though it doesnt really help me in deciding whether to go with a 20 year old house or pay about 50k extra for a new build in the area i am looking. maybe its just personal choice.

Tbh older houses tend to be more solidly built, thicker walls, better noise insulation, than modern ones. Also older houses have teh benefit of a mature garden. Any structural issues will likely have manifested by the time 20 years have passed.

On the other hand they also tend to be less well insulated, worse for wi-fi & phone reception (those thick walls) and worse plumbing. If you go back 40-50 years you will have worse wiring and even possibly lead piping.
Pro's and cons of both. I prefer older hosues personally, mine was build in the 50s and it is hard to get a drill into the walls, even with a modern hammer drill.

We had to take down unecessary chimneys and the house has been rewired, refloored, reroofed and replumbed when we built an extension. New windows and doors installed too. But damn the place is solid.

Reading back on that i guess the only part of the house still intact is the walls now I think about it. ah well.

sdraobs

antoinolachtnai wrote: »

Land does not depreciate but buildings certainly do. You will come across 100 year old buildings that are worth almost the same as a new building, but this is because the owner or tenant has reinvested. Rewiring, new roof, etc are all investment in the building.

I would say that buildings depreciate over 50 years. Over that period, the reinvestment is probably equal to the original cost of the building. You could argue that for some buildings it’s longer. But very few buildings last more than 100 years without at least one major round of reinvestment.

thanks for that Antoinolachtnai. at least if i dont buy a house over 40 odd years, it should get away without too much work.

Lumen

Depreciation in houses is widely misunderstood, I think.

Think about a concrete built 1960s house with little or no insulation. At the time that was state of the art, the lack of insulation didn't matter much because energy costs were very low and people's expectations of comfort were less.

That same house now might be priced at 400k and need well over 100k spent on it to bring it up to a standard even approaching a well-constructed new build.

At the time of build, if you asked the owner how much would be spent over the next 50 years to maintain it, they'd probably think about the roof and the windows, and imagine something like 1% per year. But even though those things would be upgraded as they wore out, there would be this yawning gap developing slowly as construction methods improved. They would never believe that in a generation or two something like 25% of the market price would need to be invested in bringing it up to current standards.

From what I see in the market, older houses are not discounted to reflect these renovation costs. I think what actually happens is that people justify to themselves the premium of older houses based on location and development potential.

But I think this is irrational, because a house in an underdeveloped location also has potential. Think of Grand Canal Dock a few years ago.

Why is one sort of potential factored in and the other ignored?

The trick is to see where the location premium (or discount) is justified, and where it is not, and also to be realistic about the costs of renovating the money pit you're thinking of splashing 30 years more debt on just to get through the draughty door.