Closed borders won’t quell house prices
A collapse in net migration will create some breathing room for New Zealand’s white-hot housing market but don’t expect Waikato house prices to go stagnant, says a top economist.
Infometrics senior economist Brad Olsen, speaking to Waikato Chamber of Commerce members yesterday, said the country’s economy has bounced back well from the pandemic shock, thanks in part to a resurgent Chinese economy.
Given the disruptions caused by Covid19, however, New Zealand businesses shouldn’t expect immigration to return to pre-pandemic levels any time soon. A drop in immigration numbers will have implications for businesses in terms of the make-up of their workforce – and could also impact the housing market.
‘‘A year ago, on average, we were seeing 6300 net migrants enter every month. That’s dropped to 630, so a 90 per cent collapse in those numbers,’’ Olsen said. ‘‘What it says is that as we go forward we’re not going to be able to rely on foreign workers quite as much, we’re going to have to do a lot more training in-house, we’re going to have to fill a lot more of those skill gaps locally.’’
Olsen said house price inflation could slow in light of the drop in net migration, although the country will still need to make up the undersupply of housing that’s been allowed to build up over the past decade.
‘‘But that drop in net migration has, sort of, taken a little bit of the pressure off, given us a little bit of breathing room to hopefully get those construction levels moving through and to try and catch up,’’ he said.
The average house price in Hamilton is now $712,717 according to the CoreLogic house price index for February – a 14.5 per cent increase on the year earlier. Uncertainty and disruption caused by Covid-19 initially led some economists to predict a fall in house prices in 2020. Infometrics itself forecast house prices to tumble 11 per cent by the end of 2021.
Olsen said his expectation is the Covid19 hit to the economy won’t be as hard as previously thought. He predicts unemployment could spike at 6 per cent but even that figure could be ‘‘a little bit over the top’’.
Unemployment rose to 5.3 per cent in September but fell to 4.9 per cent in the December quarter. On Monday, the Reserve Bank reintroduced loan-to-value ratio (LVR) restrictions on home loans. Banks are now required to limit the amount of lending they do to owneroccupier borrowers with less than a 20 per cent deposit to no more than 20 per cent of total new lending.
From May, the rules will tighten again and banks will not be able to lend more than five per cent of loans to investors with less than a 40 per cent deposit, although they have been told to implement that limit immediately.
Olsen said the LVR restrictions will limit some of the house price growth from the current 20 per cent per annum down to as low as nine per cent by the end of the year. ‘‘Now that’s a lot slower but it’s still a considerable amount of growth coming through for house prices,’’ he said.
Olsen said the Waikato economy continues to operate from a solid foundation, with strong levels of activity seen in manufacturing, health care, construction and agriculture. The latest Global Dairy Trade auction this week saw dairy prices jump 15 per cent, driven by demand for whole milk powder and butter. The price of whole milk powder jumped 21 per cent, butter 13.7 per cent and anhydrous milk fat was up 7.4 per cent. A lift in the farm gate milk price will inject ‘‘quite a few millions of dollars’’ into the Waikato economy.
‘‘All of that helps boost economic activity,’’ Olsen said.