History tells us that when recession comes along, people tend to get overly pessimistic about house prices and forget the supportive and insulating factors.

Here are a few which won't stop prices easing off, but they will stem the magnitude of declines and set the scene for a recovery next year.

Note however, that from one location to another conditions will be different, and two big themes to keep in mind for the coming year are these.

First, tourism locations will suffer most of all because of four factors: The absence of foreign tourists and their only slow return one day, the moving out of many migrant workers and Kiwis, selling by business owners who need funds to support their businesses, and the absence of fresh buying by such people until our economy is in far better shape.

Second, investors will pull back to the cities from the regions. The likely removal of loan-to-value restrictions means they don't need to go to the countryside to find properties for which their money adds up to at least a 30 per cent deposit. And, since 2016 Auckland has become less relatively over-priced, having seen prices on average rise 7 per cent versus 30 per cent across the rest of New Zealand.

Record low interest rates

They were already at record lows heading into this shock. Now they are lower and likely to stay low for three to five years. Low rates not only improve affordability for owner-occupiers like first-home buyers, they also encourage investors away from term deposits (eventually) toward other assets, like shares and property.

Commercial property worries

Theories are flying thick and fast regarding how working from home more will reduce demand for office space. Plus, many business tenants cannot afford current rents, will seek long-lasting rent reductions, and some will fail and vacate their premises. The surge in demand from investors for commercial property investments over the past five years is going to ease off and those investors will likely switch back to residential property.

Money printing

For the first time our central bank is engaging in quantitative easing – printing of money. The experience of other countries that did this during and after the global financial crisis is that while some of this money boosts economic growth and a lot never gets used, some finds its way into asset markets and pushes prices higher – most notably shares and property.

Money being saved

During lockdown young people with jobs will be seeing their potential house deposit rise firmly in the absence of money being spent on coffees, drinks, eating out, and overseas travel. Some may realise that if they maintain this enforced frugality voluntarily over coming months, they will quickly offset KiwiSaver losses and build a better house deposit.

Low debt growth

We did not go into this recession with a housing debt binge. Household debt rose just 40 per cent in the past five years versus more than 80 per cent ahead of the Global Financial Crisis. Not only that, but loan-to-value ratios have kept risky borrowing at low levels. Pressure on people to sell will be low this shock compared with the global financial crisis.

Mortgage deferrals

These will buy time for people to adjust spending, perhaps source some alternative income, and will go a long way toward containing the number of forced and unwilling sellers.

Loan-to-value ratio (LVR) regulations

At the time of writing this the Reserve Bank had initiated a seven-day consultation period on removing all loan-to-value restrictions. The chances are they will. This doesn't mean banks are about to initiate massive low-deposit lending. But banks will be seeking ways to boost profits at a time when they will be writing a lot of losses from their business sector lending. So, more people are going to be able to access a mortgage than if the restrictions had been left in place.

Kiwis returning home

The estimated net annual migration gain for New Zealand jumped to a record 65,000 in the year to February with the first recorded annual net gain of Kiwis at 800 from a loss of 7800 a year earlier and an average loss of 16,000 per annum the past decade. This change was driven by New Zealanders staying put in greater numbers. It seems reasonable to expect that many Kiwis will be coming home over the coming one to five years. Already, offshore hits on New Zealand real estate websites have soared.

This means that for the rest of this year net migration inflows will probably be low. But come 2021, firm increases are likely, newly boosting our rate of population growth.


There are shortages of dwellings in our major cities. Although working visa migrants leaving the country will reduce rental property demand, the movement of some people from the regions to the cities seeking work will provide some offset.

Falling construction

The volume of house construction fell 17 per cent during the Asian Crisis of 1997/98 and 34 per cent during and after the global financial crisis. A decline of perhaps 15 per cent to 20 per cent may occur this time around as finance available for new developments will decline, confidence about presales will fall, and buyers will naturally adopt a wait-and-see attitude. Which brings me finally to the following point.

Catch-up buying

Over 2011 and 2012 people we saw a rush of catch-up house buying in New Zealand, mainly Auckland.

It was the point at which those buyers who had been waiting for 40 per cent falls over 2009, 30 per cent falls over 2010, and even 10 per cent falls over 2011 finally gave up. They started catching up on buying at exactly the same time as those who put off buying over 2006-08 because of mortgage rates hitting almost 11 per cent also jumped in. The effect probably won't be as large this time around. But come some point in 2021, a bout of catch-up buying is likely to start.

These many factors will not prevent house prices on average from falling over the remainder of this year in the face of heightened job insecurity and income losses for so many business owners. But they will mitigate declines and set the scene for a 2021 recovery.

Tony Alexander is an independent economist and speaker.