Covid-19: The Housing Market – Positives & Negatives - Property News AU/NZ | propertynoise.co.nz & propertynoise.com.au

PHOTO: Tony Alexander

by Tony Alexander| Posted on 20 April 2020

This Supplement is devoted entirely to housing. I’m going to attempt to produce as long a list as possible of the factors which will be impinging on our housing markets over the coming months and longer-term as a result of the Covid-19 outbreak. There are sure to be other factors which I miss or which have yet to become apparent, and, in the absence of any experience at all of how our economy behaves during a pandemic, it is impossible to make strong statements about the relative strength of the various factors.

All we can each do is try and get our own personal feel for how things will go based on an individual balancing of the positive and the negative factors. And perhaps upon the basis of what one feels, reasoned decisions can be made regarding how to manage one’s existing property investments and what to do with regard to new purchases over the remainder of this year.

And one final comment, this downturn is unique and it is bad. But many of us have lived through some rough periods in the past, including the late-1970s and early-1980s when there were deepening restrictions on what we could do, bad government policies, near bankruptcy for the country, and the resulting need for massive changes – Rogernomics. We all learnt to adapt to those different turbulent environments which ran almost two decades from 1974-92, including the 60% sharemarket fall of 1987-We are not facing anything remotely approaching that lengthy epoch in New Zealand’s history.

‘Layoffs are coming’: Economist warns unemployment set to ‘surge’, house prices to fall

Negatives

Job losses
Absence of income means inability to raise a deposit, get a mortgage, and perhaps even continue to keep the house one already owns. This is the most difficult factor to place a magnitude on.

Loss of job security
Even people in work will feel reluctant to purchase large items like cars, couches, and houses for fear of losing work and being unable to service the debt. Some may sell to go renting.

200,000 Temporary Working Visa Foreigners Not Needed
In recent years NZ has become dependent upon foreign labour. Most of these people are in low skill jobs, many in tourism and hospitality. Most will leave in the coming year. This is good for Kiwi employment. But it means housing is no longer needed for these people.

Downsizing
To improve their ability to service debt some people will seek to trade down to a less expensive property. Perhaps pleased with family experiences during lockdown some people may choose to shift one partner from full-time work to part-time or quit work altogether, in order to have more time with children. This transition may entail shifting to a less expensive house, and maybe to the regions.

Temporary Net Migration Stalling
Over the past year we saw a net migration inflow to New Zealand of 45,000 people, or about 3,800 a month and 865 a week. For the rest of this year it seems valid to assume no foreigners will be able to shift here. However, almost no Kiwis are going to leave, and those coming in on flights are more likely to be Kiwi tourists returning home than people permanently shifting back. A reduced net migration inflow this coming year is likely – how much we cannot know.

Loss of Retirement Wealth
Some retired people have seen their investment portfolios lose value. To improve their cash flow position some may downsize their house. Some may seek a reverse mortgage.

Student Apartments
Inner-city apartment rents and prices will fall in the absence of many foreign students this year, perhaps most missing next year, and fewer on a long-term basis.

Airbnb
The complete absence of tourism this year and the much lower numbers of inbound travellers for years to come will bring Airbnb dwellings back to the market for long-term rental and home ownership purposes. This is good news for the worsening availability of housing around New Zealand.

Non-Bank Lenders Downsizing
New lenders, especially out of Australia, have been expanding their activities in New Zealand over the past year. Now they are pulling back. Reduced availability of finance will affect some potential buyers

Bank Lending
While lending on houses is a low risk activity for a bank, they will pull back from the market slightly. This won’t be so much because of risk and funding (as discussed below for developers), but staffing resources. Banks will be concentrating on servicing existing clients through to the other side. They won’t have time or resources for new customers to any great degree until next year perhaps.