Podcast: Auckland vs Christchurch – Which Will Weather the Covid-19 Storm Better? | Ep. 214

Posted by Ed McKnight on 21/04/20
Auckland vs Christchurch Which Will Weather the Covid 19 Storm Better 001
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Show Notes

What's Covered in the Show?

In this episode, we discuss whether Auckland or Christchurch will weather the Covid-19 storm better in terms of property prices.

This was the most popular question in our recent webinar that considered all of New Zealand's regions, considering which would be the most resilient property markets.

Our view is that Auckland, as the centre of the most jobs and economic activity, will always handle any economic downturn better than other regions in NZ. Although, Canterbury could put up a stiff fight, given where it sits in its property cycle.

We also mention our property investors webinar, which is coming up on 14th April at 7pm. During this webinar, we're going to cover how Covid-19 will impact the rental market in NZ.

Transcript

Transcript of the Podcast

Ed McKnight: Hello and welcome along to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and today on the show, we're considering, which is going to weather the Covid19 storm better Auckland or Christchurch.

Now, this was the most popular question in our recent webinar that we had, and one of the attendees said Auckland versus Christchurch what do you think is going to going to do better? Nine or 10 people up-voted that. Said, that's a really good question. And so we're going to talk about that in the show today. Uh, now of course, I'm just going to pull up some data. Andrew, what do you think about this?

Andrew Nicol: So before I let Excel Ed get into the data, my general thought are this: Auckland is always going to be the super city, it is always going to be the city which has high spikes and people are going to live there, always want to and it's going to go from strength to strength. Having said that Christchurch is in a unique position at the moment, because it's so significantly undervalued as a result it might appear that that recover...that is more resilient.

But I think that's actually driven him from the correction that's about to occur. So because we're so undervalued in Christchurch, you're going to see this big spike upwards. And again, you model or have shifts from people in Queenstown and one of the really interesting points that Ed brought up, talking about Queenstown.

Queenstown undoubtedly is probably going to be one of the worst hit areas of New Zealand as a result of Covid19. Now the people that are living there can pack up their car, they can move to Christchurch and they can get a new job in hospitality. And so that's something that is going to put more pressure on the housing market in Christchurch. So what I believe we're going to see is that both markets are going to recover quickly. Both markets are going to get some growth in the coming two or three years. Christchurch might seem like a higher percentage at times, and I don't think that's because it's bounced back and been more resilient to Covid19, that's because of the correction of the undervalued area at the moment.

Ed McKnight: And I'm just trying to find an article, which I think was either in Radio New Zealand or the National Business Review, which was, when you were talking about Queenstown, Andrew, because the Queenstown mayor, Queenstown lakes district mayor has come out yesterday and said they are expecting a humanitarian crisis was the term they used, a humanitarian crisis in Queenstown.

The reason being that there are about 3000 migrant workers based in Queenstown, who are now out of jobs and they are unable to get home. Now the civil defence force, or some sort of civil defence fund have come in and are providing food vouchers to these people who have lost their jobs and they're doing it really tough and paying high rents. But they're expecting there's going to be a real crisis. If we've got 3000 workers there who aren't going to have jobs after the lockdown ends or once the government subsidy ends, how are these people actually getting paid, so they are going to have to do something.

They can't necessarily stay in Queenstown. And I just think that that's a really interesting, a) point to make, but b) another reason why I think Queenstown is going to be hardest hit is because they've got these people who can't get home, who need to get home, but there's no flights going home and they may not necessarily have the money to go home because now their job's been ripped out from underneath them and they're living off food vouchers. It's really sad.

It's something we're going to have to think about as a country and undoubtedly solve along with the governments of where these people that are originally from as well. So it's going to be some tough times down in Queenstown, but just coming back to that Auckland, Christchurch dynamic that we were just talking about. Now, when I look at the data from the last global financial crisis. So this is the 07/08 I'm tracking data from December 07 right through to March 2015 and between that time and those two periods, there's a period of about seven or eight years. I'm looking at the dip.

So how far did prices drop in Auckland and Christchurch between December 07 and March, March 15 and the answer is Auckland prices from their peak in 07 dropped by 4%. That was the most that the median house value in Auckland dropped, uh, during the last GFC, 4%. Christchurch was down 7%. Now, of course, they were potentially at different parts of their property cycle at that specific time. But what I think this does kind of indicate is that Auckland is likely to weather the storm a bit better because there is more job security in Auckland.

There are more, a bit more, not necessarily job security, but there are more businesses, there are more jobs in Auckland, there's a greater population base and this population base consumes services, which creates even more jobs. And so there is a robustness, uh, around the Auckland economy. And it's a diverse economy, but simply because there are so many different people, there are so many different businesses that operate in different industries, which helps to protect and mitigate some risk there.

What I do just want to talk about as well, other than just talking about property prices, during the previous cycle, is I just want to talk about tourism. And the thing to point out is in Canterbury, 4.8% of the economy is based on tourism 4.8%. In Auckland, it's 4.5%. So they're very similar, but the one benefit for Auckland of course, is all Auckland is the main gateway into New Zealand for international visitors. We have typically in the past and on average, about 4 million visitors coming to New Zealand every year, the bulk of those are coming through Auckland, which means that this figure is probably slightly overrepresented because people might fly into Auckland and then go somewhere else. And the only beneficiary of that would be Auckland international airport.

So not necessarily spending at a diverse range of businesses like hotels and hospitality. So I'd expect that Auckland has a slightly lower percentage of their economy, that is based on tourism, not just because it's 0.3% lower in these stats I'm looking at, but also because most of that is going to be, or a significant proportion of that is going to be concentrated at the airport. Now the last thing I want to talk about, before I open it back up to Andrew, is where Christchurch and Auckland kind of are in their property cycles.

Now, the main thing for Christchurch going for it at the moment is that if you compere where Christchurch has been over the long term, over the long term, compared to the New Zealand median house price. The average is about, I think it's 88% so over the long-term Canterbury house prices have been 88% of the New Zealand median house price. At the moment, they are sitting at about 75% so 13 percentage points lower. So what that means is that, at the moment, Canterbury house prices are just over 15% lower than where they have been over the long-term. So that suggests to Andrew and I that Canterbury house prices are really for some catch up growth.

We're expecting people to start saying house prices in Christchurch are really cheap. I think we should start buying there. I think we should start investing there. You know, it's worth investing and moving down to Christchurch in order to take advantage of those prices. And look, we've all, I've talked to so often on this podcast about the simple fact that Dunedin house prices are now more expensive than Christchurch city house prices, which doesn't make sense. So we're expecting some catch up growth to happen in Canterbury.

Having said that as well, if I look at Auckland, it's probably at the stage where it's looking to start to take off. And we saw some rumbling signs in Auckland as well that we've seen some rumbling signs that there probably is some pent up demand and house prices are, are looking to take off again, I just want to say that over the long term, Auckland's been about 140% or 1.4 times the national median house price. And that's where it's sitting right at the moment. So whenever anybody mentions any sort of property bubble in Auckland at the moment, I kind of give them a blank stare because in relative terms, Auckland's actually where it has been over the long-term.

So it's not like there, there is some bubble going on. I'm just talking about Auckland as well. I just wanted to talk about not just the 07/08 financial crisis. I just want to talk about Auckland's slow down over the last kind of three years. So Auckland property prices peaked at about March, 2017 at $900,000. Now, the decrease in value has been the theory marginal. I think at its lowest point, it was at about $840,000 so the median house price might have dropped about $60,000 over that time. But it's been very consistent.

And what tends to happen during Auckland's troughs in particular in terms of troughs of where it is in the investment cycle, is that it tends to just stagnate. And I think the reason that house prices don't tend to drop even when Auckland's going through a flat period and the market's a bit quieter, is I'm, I'm certain that people who own properties, if they can't get the, the price that they really, really want or the price that their house was worth a year ago, if they don't have to sell, they don't sell. Now that means that there's less volume on the market.

There are fewer listings on the market and when supply levels off when supply comes back a bit that helps to keep house prices buoyant. So I expect that we're seeing a bit of that as well. We do see that within most property markets, which helps to keep house prices buoyant there. Anything else to add before we end up, finish up Andrew?

Andrew Nicol: Yeah, I'll just, I'll just quickly, I just checked over the stats on our website, just around the, where Canterbury was sitting when the GFC occurred, good timing cause I just watched The Big Short last night. If you haven't seen that movie, it's a great movie, if only to see Margo Robbie explain derivatives or something in a spa bath. I can't remember what she was actually saying. At the time of the GFC, or it was in December 07, prices were at 92.52% of what the national average was, which as Ed mentioned before we sit at about 88 normally and so, that's probably why you saw such a big correction then and you did see that 7% drop, over the next over the coming a year or so.

That's the difference that sets Christchurch out, makes Christchurch different now to when the GFC occurred, and so because we're significantly undervalued there, there's that room to move. And so whilst I don't think it necessarily has anything more special that's going to make it recover faster from the coronavirus other than you know, job opportunities and being affordable because these, that correction, it will bounce back faster in this instance.

Ed McKnight: Fantastic. Well, let's wrap it up there, but please don't forget to rate review and subscribe to the podcast. It really does help us get that message out to more and more people and hey. If you're interested in how the rental market is going to react because of this Covid19 induced shutdown, and you're sure that we are definitely going to be talking about Queenstown within that, and the number of Airbnbs that are potentially going to come onto the market, then why not check out the webinar we're hosting this coming Tuesday, the 14th of April, 7:00 PM.

Now, I'm going to drop a link to that in the show notes. Just tap or swipe over that cover art. It'll take you right there or just head over to our website, Opespartners.co.nz and you can register for that webinar there. It would be great to see you.

Thanks for listening to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and we're going to be back again tomorrow with even more daily strategies, tactics, and insights to help you get the most out of the New Zealand property market.

Until next time.