Tony Alexander is an economics commentator and former chief economist for BNZ. He believes we are probably in recession which will continue shrinking through to the September or December quarters.
The ban on foreign visitors is the biggest hit to our economy. Inward tourism contributes just over 4 percent to our GDP whilst providing employment to near 165,000 people.Many of these people are going to lose their jobs.
Tourism hotspots like Queenstown and Rotorua have boomed on the back of a rise in visitor numbers from 1.6 million in 1999 to 3.9 million in 2019, and will almost certainly experience a decline in property values. In the main centres however, things may be better.
This time around the economy looks likely to shrink at least 1 percent and the unemployment rate rise at least 2 percent, but there are a great number of factors which will help insulate our main centres against the worst effects of the recession.
1. Property owners have not been crushed recently and placed in a position of having to sell by high interest rates which in the past have preceded house price declines. Mortgage rates have been at record lows and are now headed even lower courtesy of the Reserve Bank’s aggressive easing of monetary policy.
2. Housing debt grew by 90 percent in the five years leading into the late-2008 GFC. Growth for the past five years has been just 41 percent.
3. Banks are likely to tighten lending criteria. But their capital bases and funding lines are not under threat to the same degree as during the GFC so the drive to curtail lending will be less.
4. There is light at the end of the tunnel, though few in the West are seeing it at the moment. China has got its outbreak under control, emergency hospitals have been closed, and people are emerging from their homes while factories gear production back up – though there is still some way to go. Daily new infection numbers are also falling in South Korea.
5. The long-term fundamentals for our housing market are unchanged. There are shortages in the major cities, many young people eager to buy, and many investors increasingly disappointed with term deposit rates (and maybe now more wary of volatile sharemarkets).
6. The Government’s massive 4 percent of GDP fiscal support package (with more to come in the May 14 Budget) will help mitigate though not fully offset the weakness in our economy coming from Covid-19 effects.
7. Listings are in short supply and there are reports that in the United States vendors are taking their properties off the market through fear of visiting potential buyers spreading the virus.
8. During recessions people tend to move from the regions to the cities looking for work.
These factors reinforce the need to make one’s property decisions on the basis of the many positive long-term factors Tony has striven to highlight since 2008. These include…
• Insufficient building of houses.
• Lack of construction of enough lower-priced new dwellings.
• Structurally lower interest rates boosting affordability and encouraging investors away from bank deposits.
• Good credit availability.
• High and still rising development costs.
• A shift up in net migration inflows over the past three decades.
In the five years after the Asian Crisis average NZ house prices rose by 45 percent after rising by 24% in the three years preceding the recession.
IIn the five years after the GFC average prices rose by 24 percent nationwide with Auckland ahead 58 percent, after prices rose just 14 percent in the past three years with Auckland ahead only 2 percent
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