Why Covid hasn’t crushed the NZ housing market

Why Covid hasn’t crushed the NZ housing market

Joseph Darby

7 reasons why the NZ housing market is defying Covid

By nearly all measures, the NZ housing market has performed better than expected. So far, house prices are defying logic, expectations, and even belief, as they shoot up to record highs amid the health and economic crisis.

How much have house prices increased?

According to the Real Estate Institute of New Zealand (REINZ), the median house price for NZ increased to $675,000 in August. This is an annual increase of 16.4%, with every region experiencing an increase.

Such numbers are defying grim predictions made during the deepest parts of the nationwide lockdown – including our own!

NZ is not alone in experiencing this phenomenal house inflation. The likes of Britain, Australia, and the largest residential housing market in the world: the USA, have all had big increases. In some cases, their housing markets are outpacing ours: Canada’s housing market is up nearly 19% over the last 12 months.

Here are 7 reasons why the NZ housing market hasn’t been crushed – many of which apply to other countries too:

1. The taxpayer (via the government) is borrowing like crazy to soften the blow

Rather than most individual households feeling the pain just yet, current, and future taxpayers (in the form of the government) are softening the blow with NZ’s largest ever accumulation of borrowing. This is flowing directly or indirectly to many Kiwi households in the form of:

In addition, the recently extended mortgage holiday scheme is playing a part, noting this is personal borrowing, not taxpayer/government borrowing. (The mortgage “holiday” is nothing of the sort – it’s function of delaying payments just increases interest owing). Nearly 160,000 bank loans have reportedly been put onto reduced or postponed repayments since the economic disruption began.

To avoid doubt, we’re not saying that the steps above are right, or wrong, or otherwise, we’re highlighting that they’re a factor contributing to house prices increasing.

As a side-note, these steps (and more below) have led to some bizarre economic data, including:

  • For the calendar year to date, bankruptcy proceedings have fallen when compared with 2019, and
  • Statistics NZ says that the official unemployment rate has fallen. This figure has been called “ridiculous… unbelievable… rubbish” by at least one senior economist, due partly to strict criteria that Statistics NZ use to determine if someone is unemployed.

2. Low mortgage interest rates

The early days of this recession haven’t impacted everyone. First home buyers with reliable income or employment and a lump sum ready as a deposit, can secure lower interest rates than has ever been possible.

The same also applies to reliably-employed existing homeowners looking to upsize and take on a larger mortgage – perhaps to suit a growing family.

Most commentators are picking even lower rates sometime soon, so watch this space!

3. Low interest rates on bank savings and term deposits

Interest cuts both ways – savers are being punished with before-tax interest rates on term deposits that are now less than the current inflation rate. In other words, people who rely on term deposit interest to fund their retirement are now earning less, before tax, than the current rate of inflation – they’re losing money in real terms, even before tax is included!

Investors are searching for assets yielding better than deposits offer, and while for some that means shares and diversified managed funds, for some retirees that might mean an annuity, while for others it means gold, and for more still, it might mean either buying real estate (property), or at least not selling what they already have.

As economists from ASB recently said:

“...the promise of extremely low interest rates for years to come will continue to boost asset prices” – because savings in the bank are now a no-go for most people.

4. Returning Kiwi’s, maybe?

The data is a bit hazy in this area: over 110,000 more people have left NZ since Covid struck than have returned (in other words, departures outnumber arrivals by over 110,000 people), but, there’s a reasonable argument to be made that:

  • Those returning may be more likely to be wealthier professionals with families, perhaps moving back to NZ from places such as London or Singapore, who can afford to buy a NZ home, and
  • The ones leaving are likely to be seasonal workers, backpackers, and international students – who typically occupy low-cost accommodation such as hostels, camp sites, and university halls of residence.

5. It’s early in the recession

This links to point #1 – we’re still in the early days of this recession. So far, most of the people (not all) who have lost employment because of the initial Covid-19 shock were employed in areas such as retail, tourism, and entertainment. Many are young, were on variable and below average wages, and tend not to own a home. Thus, there are very few mortgagee sales occurring.

Many Kiwi families whose income levels could be maintained through the lockdown (lockdowns for Auckland) saved money as they couldn’t dine out, shop, or enjoy many pastimes. In fact, many well-off Kiwi’s have saved even more as they might have missed overseas holidays or lengthy ski trips etc. These people are often in a great position to become property investors or add to an existing property portfolio.

Most recessions take some time to truly bite. In this regard NZ could be worse off than many nations, even if we have avoided the worst health effects of the virus to date. This is because:

  • NZ imports everything from cars and electronics, to regular household items, to oil and heavy machinery, and
  • To offset above, we (usually) export things we are good at. But nearly all our non-farm exports are suffering. Tourism was our biggest export, and previously brought in 21% of all foreign currency to NZ, while education services was NZ’s fourth largest export, in particular from lucrative international students attending NZ universities. These two fields are likely to suffer so long as the global pandemic remains underway.

Unfortunately, Covid-19 is proving tough to get on top of globally, with many countries having to renew Covid-fighting restrictions after seemingly overcoming initial outbreaks.

Should all Kiwi’s hug a lumberjack or farmer?

The last global shock was the Global Financial Crisis (GFC), a little over a decade ago. During the GFC, strong demand from Australia and China for NZ dairy and log exports carried our economy through the global troubles reasonably unscathed. This meant our housing prices didn’t drop like many other countries – here’s hoping NZ farmers and loggers can repeat the performance this time!

6. Money printing (aka “Quantitative Easing”)

Money printing has many names and forms but in simple terms, it is increasing the supply of money to encourage more lending and investment to boost the economy. As ASB economists recently said: “It’s worth remembering that all of this [higher house and other asset prices] is exactly what the Reserve Bank is trying to engineer as it tries to reflate the economy. Boosting asset prices, encouraging debt accumulation, and the associated increase in inequality are unfortunate side-effects of the way easy monetary policy works.”

This is closely tied to points #2 and #3, above.


FOMO is short for Fear Of Missing Out. The same phenomenon is occurring in the share market – many people think “it’s now or never”.

Before we entered Covid-19, there was a well-reported shortage of housing in NZ. It could be that concern about not being able to find a property if an existing owner sells is causing property owners to hold on to what they have, trying to buy first and then place their property on the market. The listings shortage could become self-reinforcing.

The bottom line – why the pandemic hasn’t crushed the NZ real estate market

Here are the top seven reasons why NZ housing is still going strong:

1. The taxpayer (government) is borrowing like crazy to soften the blow

2. Low mortgage interest rates

3. Low interest rates on bank savings and term deposits

4. Returning Kiwi’s, maybe?

5. It’s early in the recession

6. Money printing (aka “Quantitative Easing”)


Of course, we wouldn’t be doing our job if we didn’t point out the old saying that past performance doesn’t guarantee future returns, and to be wary of any snake oil tips from slick real estate agents or others who suggest that property only ever goes up in price!

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