Housing market's unlikely Covid boost

Low net migration to New Zealand during the pandemic has given the nation a chance to "dent" its chronic housing shortage, according to Kiwibank economists.

The Kiwibank team believe supply should be able to catch up with demand in the next three years, with builders making headway due to a lack of population growth.

Senior economist Jeremy Couchman believes "the tide has turned" in the race to fix the housing shortage.

"In a rare silver lining to the Covid crisis, NZ has for the first time in eight years produced a surplus of homes. With a drop in population growth, builders are catching up.

"But the 13,000-home surplus generated last year only nibbles around the edges of NZ’s huge shortage. Which we estimate to be in the order of 67,000 houses."

According to Couchman, fixing the shortage is the best way for NZ to tackle the affordability crisis and subsequent inequality problems. 

The senior economist said net migration only hit one tenth of normal levels last year due to the pandemic. With rising construction figures, the outlook has begun to change, he added.

"We’ve experienced the fastest rate of growth in supply since the 1970s, and supply growth continues to accelerate."

Couchman is bullish about the odds of fixing the crisis in the coming years.

"A time when we will no longer have a housing shortage now looks to be within reach," he added.

Though he predicts a 25% year on year increase in house prices in Q1 this year, Couchman is confident prices will flatten in the next 18 months.

"Overall, we see a deceleration in house price growth this year and next, hitting a low of 1% year-on-year by the end of 2022."

With price inflation expected to fall, he believes the Reserve Bank may no longer need additional lending curbs such as DTIs and interest-only limits. 

"The [Reserve] Bank may no longer need to use them. Certainly not immediately anyway."

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