Will the resurgence of Covid-19 in New Zealand and the hard lockdown ordered by the Prime Minister put the brakes on the heated housing market? Or will house prices simply rocket again once the country comes out of lockdown?
A 30% jump in house prices after the first national lockdown has resulted in a raft measures by the Government and the Reserve Bank, including reintroducing higher deposit requirements and scrapping tax breaks for property investors.
While the housing market has somewhat eased in recent months, the Reserve Bank was heavily tipped to raise the Official Cash Rate in order to accelerate that slowdown but instead decided today to keep the rate at a low 0.25%.
While the Reserve is aware that house prices are above sustainable levels, the spread of the Delta variant in the community stayed their hand for now.
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How lockdowns affect the property market
With interest rates unlikely to rise in the very near future, OneRoof asked housing markets experts if the lockdown could have a dampening effect on prices
Kiwibank chief economist Jarrod Ker thinks not. In his view a short and sharp lockdown will not derail the economy or the housing market.
“We’ve learnt to adapt to swift lockdowns,” Kerr says, pointing out that lockdowns tend to make people assign a greater value to their homes.
“As we saw from the previous lockdowns, we want to renovate, we want to make our homes a bit better. We want to get more comfortable because all these lockdowns are forcing us to spend more time at home. And work from home.”
ASB chief economist Nick Tuffley believes the lockdown is unlikely to have much of an impact. “The lessons we have learned through our previous lockdowns particularly shorts ones are that we will get back to normal pretty quickly.”
The underlying factors driving our property market haven’t changed, says Tuffley including a housing shortage. Supply will need to catch up and the current halt on building will only put further pressure on the market. He notes we still have relatively low interest rates, which will bring a degree of support for the housing market.
Population growth will remain low. “We’re building houses as pretty much as fast as we can, but every day we’re not building we’re not completing. Moves to open the border will be tippy toes.”
A New South Wales-style lockdown
The appearance of the Delta variant in the community is more of a risk, however, and an extended lockdown could have more bite.
“It’s completely new beast,” Kerr says. “An extended lockdown will certainly put the housing market on ice. But I don’t think it alters things enough to cause a 10 per cent fall, for example.”
Markets overseas such as the UK and Melbourne have withstood far greater lockdowns without their property markets faltering, he says.
Tuffley says a prolonged New South Wales-style lockdown could tip the country back into recession and bring on job losses. “There is likely to be a bit more (property market) caution in that environment. But generally confidence comes back once you get out of the lockdown period.”
Prepared for lockdowns
Barfoot & Thompson managing director Peter Thompson says his agency is more prepared for lockdowns than it was in the April 2020 lockdown when no-one knew realistically what was going to happen and sales ground to a halt.
“There is a lot more we can do virtually now throughout the period [of lockdown]. We are able to send documents through email with DocuSign [software]. We can do virtual viewings and virtual appraisals. It’s a bit more difficult, but people can still buy property.”
Thompson adds that there will be people who have sold, and are held back from buying by lockdown, and vice versa. They will need to complete the other half of their transaction as soon as they can.
Canterbury-based Harcourts Gold managing director Chris Kennedy points out that MIQ is full of returning Kiwis who will be sitting in their hotel rooms thinking about the house they want to buy or rent when they get out. “That will just drive the market,” he says.
Barfoot and Thompson managing director Peter Thompson: "There is a lot more we can do virtually." Photo / Supplied
Kennedy adds that even with the government and RBNZ trying to slow the property market, mother nature in the form of Covid is unlikely to have any more luck.
“We have been here before. If you go back in history we saw a spike of interest in property after the first lockdown and [then] a boom. The drive to own property just becomes greater [in lockdown],” he says.
However, he doesn’t expect to the see the post lockdown frenzy of mid last year because this time the sales process hasn’t been brought to a complete standstill.
“This is going to be a massive reality check, then we will get back into just moving forward again,” he says.
In Wellington Tommy’s Real Estate principal Nicki Cruikshank ’s phone was running hot this morning with enquiries from 70 buyers, mostly interested in five residential and commercial developments the agency is selling off the plan.
Potential buyers can peruse off-the-plan the properties online with their additional time at home. Existing home sales will be slower for the lockdown, but Cruikshank believes sales will bounce back better.
So will lockdown fatigue kill the market? New Zealanders are accepting of the need for a lockdown, says Tuffley. The longer it goes on for, the greater the fatigue and risk of non-compliance.
