Migration and the rental scramble

It is now hard to believe that there could be more than a handful of people left in the country thinking the Covid-19 crisis will cause house prices to fall in New Zealand. The newspapers and six o’clock news bulletins are now frequently replete with stories of prices rising strongly, records being set around the country, full auction rooms, queues of people attending Open Homes and rental property inspections, and interviews with disappointed people struggling to make a purchase.

Anyone reading my material this year will know that I have tried to pull people away from a view that house prices were set to fall sharply, basing my comments on a wide range of factors.

For this week’s article I thought it might be useful to take a look at the second to last item I mentioned in the first paragraph. Why are there people queuing to inspect rental properties? Is there not a large over-supply caused by the absence of tourists throwing Airbnb properties on the market, absence of high monthly net migration gains, and young people moving back home?

What has happened to cause this surge in demand?

One thing mainly. The biggest net migration boom which New Zealand has ever seen. Apologies if you have read one of my various articles running through these numbers before, but they need to be repeated because too many people continue to focus on the weak monthly migration flows since lockdown, and not what happened before the borders closed on March 2020.

On average over the past ten years New Zealand has enjoyed a net migration gain of 35,000 people per annum. Early this year the flow for calendar 2019 was reported as a gain of 42,000 people. Heading into the Covid shock most of us figured that the flow this year would be around a net 40,000, easing to maybe 35,000 over 2021.

But courtesy of a strong lift in Kiwis coming back to New Zealand even before we had heard of Covid-19, and fewer leaving, that calendar 2019 total has now been revised up to a gain of 72,000. That’s 30,000 more people seeking long-term accommodation than we thought. And over the period of January through to March there was another net migration gain of 36,000 people, which was over 20,000 more than the usual three month flow.

It turns out that we already have in New Zealand the net population gain we expected from migration flows through to September next year. All those extra people are not staying in campsites, motels, campervans, and hotels. They are staying in rental properties for long periods, or seeking to purchase a home.

That is why the strength we are seeing in the housing market cannot be simply put down to speculative fervour. There is a solid population fundamentally underpinning it. But on top of this population pressure we also have record low interest rates expected to go lower and stay low for years, absence of LVRs, commencement of the upward leg of Auckland’s house price cycle from late last year, and no comments from senior politicians or policy-makers that house prices need to fall.

Once again the housing pessimists have got it wrong

Making for over three decades so far of incorrect predictions of prices falling, and the delivering of bad advice to young people to put off buying until a later date.

Now that FOMO (fear of missing out) is in full swing, there seems little reason for believing that the pace of house price gains is going to much slower over the next 2-3 years. Having said that – watch for the Reserve Bank reinstating LVRs for investors from May 1 next year.

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