Falling levels could dampen demand in housing and construction sectors, says new report
The closure of New Zealand’s borders due to the COVID-19 pandemic has caused the surge of migration inflows to come to a halt – and this could have big implications on the country’s housing and construction sectors.
According to Westpac’s latest economic commentary, falling migration numbers will negatively impact consumer spending, and ultimately slow down demand in the housing market
“Rapid population growth on the back of high levels of net migration played a key role in shaping New Zealand’s economic fortunes in recent years,” Westpac said. “However, following the outbreak of Covid-19, the inflow of people into the country has come to an abrupt halt.”
Read more: Returning Kiwis key to steady house prices – report
While the start of the year saw population growth surge as large Kiwis living abroad returned to the country as the pandemic spread across the world, that number quickly to just one-third of normal levels.
“At the same time, the closure of our borders has meant that the flow of new foreign citizens arriving in the country has also dried up,” said Westpac. “And with the virus continuing to spread abroad, migration and population growth are likely to remain very low for some time yet. That will severely curtail one of the major drivers of economic growth in recent years. It will also dampen demand in the housing and construction sectors, and will have important implications for the labour market.”
According to Westpac, in broad terms, “lower migration means that we’ll need fewer houses than would have otherwise been the case” and there will also be less pressure on rents.”
Westpac cautioned, however, that recent developments “do need to be put into context.”
“New Zealand is still wrestling with a significant shortage of housing,” said Westpac. “In fact, compared to the increases in our population, we estimate that New Zealand has built around 50,000 too few homes since 2013.”
“It’s also important to remember that while slower population growth does point to less pressure on house prices, it’s not the only factor that affects New Zealand’s housing market. The RBNZ’s easing in monetary policy settings and related falls in mortgage rates have supported a sharp rise in demand from both first home buyers and investors. That’s resulted in house prices pushing higher in recent months in spite of the headwinds buffeting the economy. We expect that house prices will rise by 6.3% over calendar 2020 and have pencilled in another 8% rise over 2021.”
Looking at the latest mortgage trends, Westpac noted that fixed mortgage rates fell sharply over May and June, but “are stable now and don’t look likely to move much in the short run.”
“However, in November we expect the Reserve Bank will introduce a Funding for Lending Programme, the aim of which is to reduce retail interest rates. At that time, we expect that both fixed and floating mortgage rates will fall. How far they fall will depend on the details of the Reserve Banks programme, which are not known at this stage.”
