What happens to house prices when migration stops?

With migration all but stopped for now, a big stimulator of the housing market is also in hiatus.

New Zealand’s population hit five million in March, driven by net migration and in part by Kiwis coming home due to the Covid-19 pandemic, but the numbers of people arriving and departing daily has dropped from a combined 30,000-50,000 before March to between zero and a few hundred a day.

Statistics New Zealand senior demographer Kim Dunstan says the change in numbers is unprecedented.

As to what will happen with migration in the coming months and years, he says projections are uncertain at the best of times but more so now.

“The uncertainty now is coming from the travel restrictions not just in New Zealand but in other countries. The volume of travel has shrunk to a trickle both in terms of arrivals and departures.”

It is also unclear whether Kiwis who have already come home plan to stay or if they will head back overseas once travel restrictions are lifted, he says.

Expats on the hunt

Bindi Norwell, chief executive at the Real Estate Institute of New Zealand, says agents around the country are increasingly getting calls from Kiwis abroad who are looking to come home, and more so as New Zealand’s success at reducing the virus continues to make headlines around the world.

“Some have already come home to lock down in what’s perceived as a safer environment, others are looking to come home as soon as they can, quarantine, and look for job opportunities, and others are looking to buy and rent out the property until they’re ready to make the move home.

“Enquiries have mostly come from Kiwis in the UK, USA and other parts of Europe and have mostly been for those looking in areas such as Auckland, Wellington, Hawke’s Bay, Coromandel. Enquiries for properties in the South Island have been fewer at this point in time, although this may change in the coming months.”

Real Estate Institute of New Zealand CEO Bindi Norwell says expat enquiry has grown since Covid-19. Photo / Supplied

REINZ is also hearing more stories of people wanting to relocate around the country in order to be nearer to family members, or because they enjoyed the slower pace of life in lockdown and have realised their jobs can be done from home.

“Good technology/broadband is becoming an increasingly important requirement as people look to more remote areas for relocation,” Norwell says.

ANZ chief economist Sharon Zollner is cautious as to whether returning Kiwis will provide much stimulation for the housing market, however.

“Once we get through this disruption of the border being closed then you’re still left with a very weak picture because essentially people come because there are jobs here that employers can’t find Kiwis for and that doesn’t seem likely to be the case for quite some time,” she says.

“You might get an influx of Kiwis from Australia who have become unemployed over there and can’t get benefits but they’re not going to come over here and rush to buy a house because presumably they won’t be in the best financial situation, and they’ll struggle to find work here, too. So it’s a pretty big negative potentially for the housing market.”

ANZ forecasts the market to drop by 10 to 15 per cent this year. Zollner says there may well be some Kiwis who do go house shopping when they get home but they will likely be of independent means and in the luxury property arena, and those numbers may be limited.

“Basically, there’s not going to be a lot of jobs whether you’re an expat or a new Kiwi so there’s going to be limited pull,” she says.

“If they’re not earning they probably won’t be in a position to service a mortgage so they will be probably staying with family at that point, not really stimulating the housing market, depending on their personal situation of course.”

Pressure on rental properties

Typically, big swings in GDP are driven by agriculture but agriculture doesn’t hire many people, and now the problem is tourism, Zollner says.

“Tourism is about six percent of the economy directly but it’s nearly 9 per cent of employment. It’s a real people-heavy industry, and retail and hospitality are also really people-heavy, and those are three of the worst affected sectors in the economy so we’re going to get a bigger hit to unemployment for the same GDP shock compared to normal.”

The impacts will be widespread and Queenstown, for example, will depopulate, Zollner says.

“They’ll have people leaving the region just as it becomes harder to fill your Airbnb converted garage and so you’ll have an increase in the long-term rental supply at the same time you’ve got a big decrease in the rental demand, so I would expect a huge decrease in rentals.”

Retirees may still move to cheaper properties regionally, though Zollner says they will more likely move within cities. CBDs, which are designed to “jam” people closer together, are more likely to struggle worldwide.

While net migration is of real importance to the economy, Zollner says the country’s reliance on people coming in is “cheating” because this is not quality growth.

“It’s more bums on seats, it’s not productivity growth, which makes people better off, and we’ve basically been determined to keep real wages low in this country by importing labour every time it looks like it’s getting expensive,” she says.

“I’ve got a bee in my bonnet about this one because you don’t turn into a high wage economy that way and it’s coming home to roost now.”

Australia in recession too

Getting the borders open again will help as New Zealand has taken a direct hit to GDP from international tourism of between 4.5 and 5 per cent and if the border with Australia is opened we may be able to halve that, she says.

But she also says we need to be realistic about the fact Australia is in a recession as well and trips to places like Queenstown are highly discretionary spending.

“On the other hand, if we’re the only international destination that’s on offer we’ll probably get a pretty big market share so that would be pretty meaningful for our tourism industry if we could get that going, but it won’t solve the problem.”

Household debt has crept back to over 160 per cent of household disposable incomes and while opening the borders will perhaps save some jobs in tourism and reduce downward pressure on house prices in terms of people being able to pay their mortgages, that is not a positive scenario so much as a less negative one, Zollner says.

“People will be scared. Job security is terrible. There’s a whole bunch of people out there at the moment who don’t know whether their job’s been saved or whether their redundancy has just been deferred, and possibly their employer doesn’t know at the moment either.”

ANZ’s forecast for house prices getting back into the positives is 2022 or possibly the end of 2021 and in the meantime homeowners should focus on paying down their mortgages, and especially those who find themselves in a negative equity situation, Zollner says.

“Even though it’s incredibly demotivating to be under water it makes it even more important to swim as fast as you can.”