Coronavirus 'could affect house prices'

Thursday, 30 January 2020

New Zealanders are being warned the spread of coronavirus could hit tourism and exports – but one economist says they could be affected even closer to home.

Independent economist Tony Alexander said the virus, of which there have so far been more than 6165 confirmed cases and more than 130 deaths, could have an impact on house prices.

There could be both positive and negative effects, he said.

'The pace of economic growth in the country will be slowed by the reduction in tourism activity and increased caution by consumers and businesses generally. This will reduce the ability of businesses to raise prices and reduce the chances of inflation moving upward. That means less chance of higher interest rates this year and the return of a possibility that rates get cut – though that would be a brave call this early in the process.'

New Zealand could be a more attractive place to live if there is a widespread international outbreak, Tony Alexander says.

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Those lower interest rates would probably boost housing activity and average house prices, he said, as investors held on to their properties – and possibly bought more – with term deposit rates low and increased worries about equities' returns.

'Given the biggest weakness in economic activity from the virus will occur offshore the relative attractiveness of staying in and shifting to New Zealand will grow. So, population growth from net migration flows will likely improve very marginally and that will boost housing demand. However, reduced opportunities to make money from Airbnb renting may return some properties to the rental pool – again, just at the margin.'

In tourist towns, a drop in employment could mean less demand for housing if there was no longer a shortage of staff in New Zealand, he said.

'However, Rotorua and its environs will likely suffer a net depressive impact and this risks stalling the rise in the Rotorua market in recent years. All up, at the very margin, a virus outbreak looks like a net negative for housing markets in tourism-focussed locations like Rotorua and to a lesser extent Queenstown and Wanaka. But elsewhere in the country the interest rates effect and potentially tiny net migration effect could be a small net positive.'

He said, if the virus became much more serious a threat internationally the impacts could be more severe.