Covid refugees to lift house sales
Some ‘remarkably less terrible’ times ahead: Economist
Auckland is experiencing a flood of expat Covid refugees escaping health risks and job losses overseas, says Auckland Council chief economist David Norman.
He says the many returning Kiwis will be a “twinkle in the eye” for the housing and development industry which will see the tap for new housing has not closed.
Norman counts himself as an optimist in a sea of economists commenting on the financial impacts of Covid-19.
He predicts tough times ahead for the Super City, but “remarkably less terrible” on some fronts. A big worry is the ongoing water crisis and severe restrictions in summer. Early estimates of 14,000 jobs being affected should be treated as a conservative figure, he said.
Norman is pleased to see Auckland’s pre-Covid story of external migration driving growth and returning Kiwis looking to buy homes.
He assumed a third of the 20,000 people who had been through quarantine in the past three months were settling in Auckland, which equated to about 30,000 people in a year. This is similar to the number of migrants in a year.
A lot are young people returning from their OE, who will likely live with parents and friends, not have a job or money to buy a house.
Over time, said Norman, the inflow would be good news for developers to reassess their plans and run the numbers. Right now though, he said the banks would be cautious about lending money until they knew what was happening to house prices in the longer term.
“When in the history of New Zealand have we had a situation where basically a market stops operating for five weeks? For five weeks no one could go to an open home. No one knows what a house is worth until you come out of Covid and the market re-establishes,” Norman said.
The commercial property sector had turned before Covid with the completion of the huge Commercial Bay and Newmarket mall developments and nothing of that scale in the pipeline.
Covid had compounded matters with rising unemployment and people working from home. As a result, businesses needed less space and would be negotiating leases over the next few years, said Norman.
“I suspect we will see weakness in commercial. The one exception might be around industrial and storage. That has been a growth sector in Auckland for several years now,” he said, citing the growth in online shopping.
Norman said he had no data on the Auckland CBD, but it was undeniably true the lack of tourists, international students and fewer workers was worrying and a challenge.
Having talked to many larger firms in the CBD, he said many were moving to more of a mixed model where people were perhaps in the office half the time.
Auckland and New Zealand’s fundamentals were strong in the leadup to Covid, with growth in the mid 2 per cent, unemployment in Auckland at 4 per cent, and the city had seven million guest nights a year and surging house prices.
It was different to the Global Financial Crisis of 2008 with dodgy lending overseas and poorly handled credit ratings.
When New Zealand headed into Covid, Norman said, there was a lot of doomsday talk, but things were panning out far better than even the more optimistic commentators had expected.
Starting with the bad news, he said unemployment had risen to well over 6 per cent in Auckland and would continue to rise to between 8.5 per cent and 9 per cent at the end of the
year. That equated to tens of thousands of local jobs.
“It is a terrible outcome but for a while there it looked a lot worse.”
On the good news front, house prices as an indicator of confidence were down by a smidgeon in Auckland, albeit low volumes.
“I think prices will fall further. I suspected prices would fall 5 to 7 per cent this year. Other commentators were saying up to 15 per cent. Most of the banks were in the 7 to 15 range.
“I’m now thinking 7 per cent is max and it’s probably more like 5 per cent.”
Norman said there were huge jobs losses through level 4 but the growth in joblessness had slowed to a trickle.
“It is still going up, but we were talking 12, 13 per cent . . . but with more stimulus from the Government in the budget and moving to level 1 early, it looks as if unemployment is not going to pan out as bad as we were thinking.”
When in the history of New Zealand have we had a situation where basically a market stops operating for five weeks? David Norman