The widespread economic downturn from coronavirus is likely to have a significant effect on the New Zealand housing market. While it's still early days, leading economists are predicting price declines well above 10% for both residential and commercial property. The construction sector is also likely to weaken, with declining GDP growth, rising unemployment, and lower population growth shrinking demand as many Kiwis face an uncertain future.
According to BNZ economists in the bank's latest Economy Watch report, New Zealand house prices will decline by about 12%. Along with the obvious effects of rising unemployment and lower population growth, the bank is also expecting greatly reduced construction activity as a direct and indirect result of COVID-19. With many experts forecasting reduced demand and supply, New Zealand may experience a downwards cycle due to a lack of clarity about when to enter the market.
From the report: “Residential construction, in particular, faces massive headwinds. Four factors will combine to conspire against future activity: - Lower population growth; - Heightened unemployment; - An increased supply of AirBnB properties becoming available; - Weaker house prices. Lower population growth is likely to be the single biggest negative influence, and the rising unemployment rate is the biggest downside risk to both residential construction and house prices... Of course, the very fact that house prices are falling will put further downward pressure on the demand for new housing as already-nervous investors stay clear of the market.”
The Reserve Bank of New Zealand (RBNZ) is a little more optimistic, with its recent Monetary Policy Statement predicting price declines of 9% this year. RBNZ is expecting a 22% decline in GDP in the June quarter, with rising unemployment joined by lower wage growth, reduced hours, and shrinking household spending: “We expect lower population and household income growth to cause house prices to fall, despite lower construction activity, lower interest rates, and the easing of loan-to-value ratio restrictions. Our baseline scenario assumes house prices will fall by around 9% over the remainder of 2020.”
Due to the inherent uncertainty of the pandemic, ANZ is unwilling to lock down an exact figure. The bank noted price declines between 10% and 15% in its latest NZ Property Focus report. However, ANZ recognises the possibility of further declines if GDP falls beyond its current predictions. According to the report, "We don't think the RBNZ can prevent house prices falling double digit, but they may be able to support a faster recovery." ANZ has listed the regions most vulnerable to price falls, including Queenstown-Lakes, Mackenzie, Kaikoura, Westland, Taupo, and Thames-Coromandel.
The future of housing growth in New Zealand is largely dependent on the overall economic recovery. RBNZ has produced three possible scenarios, all of which make for depressing reading. In the baseline scenario, unemployment peaks during 2020 at 9% and the domestic economy gradually recovers from 2021. In the second scenario, unemployment peaks at 12% and inflation remains below 1% until the end of 2022. In the third scenario, which is based on a slower global recovery, unemployment peaks at 9% but holds at 6.5% as GDP takes longer to return to pre-COVID-19 levels.