Housing shortage could soon be over: BNZ
Tuesday, 12 May 2020
BNZ has sounded alarm for the residential construction industry, saying house prices are likely to fall 12 per cent.
Head of research Stephen Toplis said the bank was very unsure construction would be the economic saviour people were hoping for, given the big obstacles in its way, the biggest being unemployment.
''We are now witnessing one of the most rapid increases in unemployment ever experienced,'' he said in a research note.
The bank is forecasting 200,000 people to be out of work by the end of the year, and it would take until late 2022 before employment returned to pre-coronavirus levels.
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The rapid rise of joblessness was ''lethal'' for the housing market, affecting people's ability to borrow.
And there were three other ''massive'' obstacles affecting housing demand: lower population growth, weaker house prices and a freeing up of Airbnb properties.
With tourism on hold, more Airbnb properties would hit the market, boosting the housing supply.
Lower migration numbers would also cut demand for new housing; BNZ forecasts annual population growth will slide to about 0.6 per cent, from a peak of 2 per cent.
At those levels, the bank says the country's housing shortage would disappear quickly.
It estimates the country needs about 11,000 new houses a year to meet population growth, compared to the current rate of more than 37,000 — a level that has taken the industry years to reach.
Even if the Government moves to stimulate building, Toplis expects annual housing consents to slump to between 20,000 to 25,000 over the next five years.
As demand weakened, house prices would fall, as low as 12 per cent, for about three years, and this would further suppress demand for new housing, ''as already-nervous investors stay clear of the market,'' he said.
But the drop would only put house prices back to where they were in last quarter of 2016.
''So, if you are a long-term holder of property, it pays to recognise that the value of your house will still be 64 per cent above where it was a decade earlier.''
Non-residential construction also faced headwinds, although not as extreme, Toplis said.
There would be a meaningful bounce in activity as builders returned to work on existing jobs, but it would take several years to return to its pre-Covid-19 peak.
New hostels, hotels and motels were likely to be put off for some time, as would shops, and the impact of Covid-19 on the demand for office space ''will be fascinating to watch'' after so much working from home, Toplis said.
New distancing rules on-site appeared to be already slowing productivity, and if a worker got ill, they could not work from home.
'Anecdotal evidence that we have received from clients is that on-site productivity is down between 20 and 30 per cent,' he said.
Where there could be construction growth was in the building of manufacturing plants, hospitals and nursing homes, schools, and warehouses for the burgeoning online retail trade.
Toplis said there could also be some ''spillover'' work from local government and national infrastructure projects.
''But, to the same extent, we are already seeing major projects cancelled and deferred so risks to the downside abound too.''
On balance, non-residential construction would take a hit, although a mass of Government money coming its way would cushion the impact and get it back to relatively high levels more quickly, Toplis said.
''Whatever the eventual outcome, our clear warning is that construction alone cannot dig the economy out of its current hole and, even if it does make a stab at doing so, we caution against placing too much emphasis on its likely impact on the broader economy,' he said.