_Will relaxed border rules in New Zealand impact property values?

Following a long wait, Aotearoa has started reopening to the rest of the world. Bayleys’ national director of residential, Johnny Sinclair, investigates what this means for residential property prices.

April 17, 2022

Virtually nil or negative for the last two years, net migration ground to a halt in the wake of the global pandemic and prolonged border closures while domestically, residential property prices hit new heights, exceeding value growth of some 30 percent in 2021 alone.

By October this year, New Zealand’s border will be fully open to all visa categories; meaning students, workers, expatriate Kiwis and tourists from across the globe will return to Aotearoa.

But, as New Zealand embarks on its journey of reconnecting with the rest of the world, Bayleys’ national director of residential, Johnny Sinclair asks whether residential property values will rise or fall as a result?

Employment Opportunities

Stemming from a global skills shortage, Kiwi workers are benefitting from strong job prospects, record-low unemployment and the bargaining power this offers when negotiating wages.

But we’re not alone, and the global dogfight for talent is underway - set in equal parts to attract workers, and lure them away from New Zealand’s shores.

Recent estimates from Kiwibank economists note a net population outflow that could reach 20,000 by the end of the year – a loss compared to the 2011 Australian mining boom which saw New Zealanders depart in droves as they sought higher wages and greater opportunities across the ditch.

Driving unemployment to record-low levels, New Zealand’s skills shortage is so acute that economists warn of a drag on productivity with the potential for wide-ranging effects on key sectors including building and construction, farming and horticulture.

This continues to offer an incentive for Kiwi firms to create attractive employment packages and secure talent to keep the wheels of the economy moving.

Despite rising inflation, strong employment indicators are helping Kiwis to feel confident about their professional prospects, which goes some way to underpinning demand for assets like residential property as job security is a key consideration for those looking to secure finance.

However, a tight labour market can also impact the housing market on the other end – with a shortage of skilled labour making it difficult to deliver the nearly 50,000 new homes consented in the year to February 2022.

"A tight labour market can also impact the housing market on the other end – with a shortage of skilled labour making it difficult to deliver the nearly 50,000 new homes consented in the year to February 2022."

_Johnny Sinclair, Bayleys’ national director - residential

This has the potential to exacerbate housing supply shortages, and underpin value growth as obstacles to construction hold up delivery of valuable new homes.

Regional Diaspora

Where historically, new arrivals have sought a home in New Zealand’s larger cities, the rise of agile working environments, strong commodity prices and local infrastructure investment have shifted the focus of economic demand for incoming workers.

Record profits for farmers have spurred economic activity in the regions and the rural land market has reached new heights underpinning a strong outlook for the remainder of 2022.

Similarly, meaningful increases in building activity across the country saw average annual employment in the industry rise nearly four percent – adding some 9,300 jobs.

Major cities Auckland and Christchurch noted negative population growth for the first time on record during the pandemic, as opportunities in the primary industries, and the building and construction sectors lured residents to the regions, attracted by growing prosperity and comparatively more affordable housing markets.

As a result, we have seen broad-based value growth for residential property across the country, as virtually every corner achieved record average sale values at some point within the last 12 months.

I expect regions hit hardest by the lack of tourism will benefit the most from the return of international travel, as local businesses reboot and the gradual flow of arrivals set to touch down in meaningful numbers from Q4 2022 offers renewed confidence in these housing markets.

"Regions hit hardest by the lack of tourism will benefit the most from the return of international travel, as local businesses reboot and the gradual flow of arrivals set to touch down in meaningful numbers from Q4 2022 offers renewed confidence in these housing markets."

_Johnny Sinclair, Bayleys’ national director - residential

Most importantly, however, policymakers have an opportunity to lean into challenges of sustainable migration, housing supply and ongoing infrastructure investment, which have previously tightened the market and contributed to unsustainable house price growth.

Migration and the Economy

With Kiwis paying more for everyday items, and expectations for a 3.25-percent Official Cash Rate (OCR) by 2024, some observers say the rising cost of living could facilitate a mass exodus as Kiwis move offshore in search of greater opportunities.

We expect residents held captive over the pandemic period will naturally take flight; travelling for work or education, taking that long-awaited overseas experience or holidaying with family and friends. But equally, we are set to welcome back expatriate Kiwis, who have been locked out of their home country for too long.

The latter, which have been on more lucrative international wages have the potential to bring with them foreign buying power and the ability to pay higher prices for the homes they want.

While we don’t expect these new entrants will inflate prices, there is potential for them to sustain a healthy level of market activity, while moderation of value growth ensures affordability looks a little better for Kiwi buyers by the final quarter.

In an inflationary environment, where the cost of goods and services continues to outpace wage growth, the astronomical property prices of the last two years are simply unsustainable.

While the central bank works harder to tighten monetary policy and subdue the threat of embedded inflation, rising property values only serve as further impetus to continue raising interest rates to dampen consumer demand.

We expect the return of migration will indeed provide another pillar supporting the floor underneath the residential housing market. However, policymakers with their eyes on the inflation-control prize will be careful to ensure prices do not run away again, prompting a surge in the OCR that would disproportionately impact the country’s most vulnerable residents.

While migration naturally influences property values, the real issues to watch this year will be global economic developments, the impact of government policy, incentives to invest in new-build housing and New Zealand’s ability to mitigate the worst impacts of rapidly rising inflation.

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