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Steep road ahead

Tags: Residential Residential Views

New Zealand finds itself in familiar territory as households and businesses navigate Alert Level 3 and 4 lockdowns with the emergence of the Delta-variant of COVID-19 in our communities. But will history repeat itself for our housing market?


With New Zealand facing the familiar road to economic recovery following another extended period of lockdown restrictions, the question on every homeowner’s mind is whether property values will take off again?

A complex cocktail of market conditions, monetary policy and fiscal stimulus saw average property prices record double-digit value growth following last year’s nationwide lockdown.

According to data from the Real Estate Institute of New Zealand (REINZ), the national median sale value lifted some 20 percent between March 2020, when lockdown began, and the close of the year.

While in 2021 we have the benefit of experience and a better understanding that bleak forecasts for employment, consumer spending and overall economic recovery were overstated, the landscape looks a little different this time around.

At the beginning of last year’s pandemic crisis, the Reserve Bank of New Zealand (RBNZ) adopted its ‘least regrets’ strategy to keep the economy afloat, deploying all the tools in its fiscal arsenal to allow money to flow through our economy.

This gave rise to a comprehensive programme of money printing (the Large-Scale Asset Purchase programme), the temporary removal of Loan-to-Value Restrictions (LVR), and historically-low mortgage lending rates encouraged by the Official Cash Rate (OCR), which was slashed 0.75 percentage points to a new record low of 0.25 percent.

Today, the RBNZ has wrapped up its bond-buying/cash printing programme, reinstated LVR limits – in fact raising deposit requirements for investors after heightened activity was having a punitive effect on first home buyers.

It has also signalled an intention to once again raise the OCR when New Zealand pushes through this latest outbreak.

Despite the absence today of some huge stimulatory factors which gave rise to runaway house prices, underlying market fundamentals including a severe supply-demand imbalance, wage growth, and low benchmark interest rates that continue to provide an impetus for buyers to secure the keys to their new home sooner rather than later.

Where lifting lockdown restrictions last year saw pent-up demand come to life as high open home attendance, and even higher prices paid in the auction room; Bayleys expects the seasonal advantage of spring will have a larger impact this time around – further encouraging buyers sitting on the fence to spring into action.

Backed by the benefit of familiar territory, we expect once lockdown restrictions ease, the economy will resume its quick and comprehensive recovery, extending to an uptick in sales activity for the residential real estate market.

However, regulators are keeping a close eye on runaway prices which are on track to reach close to 30 percent value growth by year-end, and factors such as the implementation of debt-to-income limits, greater controls on investors and rising mortgage lending rates, in our opinion, this mean prices will rise, but not at the levels seen following the first and most dramatic of New Zealand’s pandemic lockdowns thus far.

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