OPINION: Over most of the time that I’ve been writing a column for OneRoof I’ve made it my practice to include my email address at the end of each article so as to allow readers to correspond with me and share their own views. As a result, I receive a lot of feedback and, while a few of these emails would make your grandmother blush, the vast majority are either very kind or, where they propose a different perspective, still very courteous.
Amongst this latter group, there are those who continue to write to me to tell me why this market is different and why a particular set of circumstances is going to lead to an outcome we haven’t seen before (by which they almost always mean a property market crash).
While I respect these alternative views, the evidence of the past simply doesn’t support such claims. More than 50 years of history tells us that the New Zealand property market is remarkably stable and behaves in a very predictable way in cycles of around 10 years, regardless of government policy and the performance of the economy. Put bluntly, there simply isn’t much that the New Zealand property market does which can’t be predicted within a broader framework.
Which makes some of the big Covid-19-related changes, outlined below, all the more significant, because no one saw them coming.
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1. The lockdown
If I’d told you back in February that you were going to be confined to your home for around seven weeks – unable to leave for anything other than the absolute necessities of life – you wouldn’t have believed me. Yet that’s exactly what happened. The lockdown has changed the way we live, work, and communicate, and led to a binge of deferred maintenance and DIY up and down the country as Kiwis looked to make the best use of their enforced isolation. Our cultural memory will never be quite the same again.
2. LVR restrictions dumped
Back in late November the Reserve Bank announced that it had reviewed the loan-to-value-ratio restrictions and decided to leave them in place, without any tweaks, for another year. So who would have guessed that they would be entirely removed just four months later? Well, actually I did back in March, but even then it was more in the form of a challenge than a prediction. Their removal, which will last for at least a year, caught the market entirely off-guard and is likely to affect lending once banks are confident that house prices are holding stable. If you’re a first home buyer, in particular, this is great news.
3. Interest rates lowered
Over the past couple of years most of the market chatter has been about the ‘inevitability’ of mortgage interest starting to climb again. Instead, another round of cuts has made mortgage interest rates in the mid to high 2’s the new normal as a result of unprecedented further cuts to the Official Cash rate, more quantitative easing (credit creation) and general market jitters around the world as a result of Covid-19. Market wisdom also suggests that these new low rates will be with us for a long time which certainly won’t do anything to dampen house price inflation.
4. More rental housing available and slower rent increases
The full impact of Covid-19 on the rental market won’t be known for a few months as we’re yet to see the impact of Government rules which penalised landlords during the lockdown. However, there’s reason to believe that the supply of rental housing will increase as a result of three things: Airbnb properties being converted to long-term rentals due to the collapse of the international tourist market; stock becoming available as international visa workers vacate rentals and return to their home countries; and hotel rooms being converted to rentals until the tourism market recovers. We won’t know the numbers involved for a while, but the combination of these unpredicted Covid-19-related developments may be instrumental in moderating any increases in the cost of renting over the next couple of years.
Will these four big moves change the fundamentals of the New Zealand property market in a way that defies the behaviour of that market over the past 50 years? My gut instinct is to say no – the market will continue to do what it’s always done despite these extraordinary events. But only time will tell.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
