Over the past couple of weeks there have been a flurry of opinions around what will happen to house prices in the wake of the coronavirus.
Unsurprisingly, one or two of the usual culprits have rushed in to predict almost immediate doom and gloom with house prices crashing and the economy going into freefall. But most commentators – myself included – have taken the view that house prices will probably be largely unaffected if the virus is under control by June or July. This view isn’t wishful thinking; it’s a reasoned assessment of how things will play out given current market forces, the difficulty of buying or selling a property during isolation, and the nature of the measures which have been put in place to support people over the next few weeks.
But what if the lockdown isn’t over in four weeks time? When advising the country of the need to isolate a few days ago, the Prime Minister Jacinda Ardern chose her words carefully when describing the isolation period as being for a "minimum" of four weeks, leaving open the possibility that it may continue for longer. And now, new research from the University of Auckland suggests that the restrictions may need to last much longer because we won’t actually be safe from Covid-19 until a treatment or vaccine has been found, something which could take a year or more.
So how would this play out in the property market? What would a prolonged period of lockdown do to house prices?


The honest answer is: no one knows. There are simply too many variables at play to accurately predict what the market would do if these conditions continued for a long time. That said, we can certainly make some informed assumptions about how the Government might respond to different scenarios. Obviously I can’t cover them all – but here are three fairly logical views of how this might play out and what each would mean.
Scenario 1
By mid to late April reported New Zealand cases are in the thousands but have peaked. The requirement for isolation is progressively relaxed in parts of the country where there have been no reported new cases for four weeks, with the proviso that people in these areas cannot travel to other parts of New Zealand. The property market, in these places, quickly returns to a form of subdued normality, albeit with travel restrictions. This process continues until the entire country is virus free and we are allowed to travel freely again, however the ban on international travel remains indefinitely. Under this scenario house prices will mostly hold up with just a few dips in specific locations.
Scenario 2
Enforced isolation doesn’t stem the tide of new cases which continue climbing into the tens of thousands, forcing the Government to mandate ongoing isolation. The domino effect on the wider economy causes massive job losses leading to the risk of cascading mortgage defaults. Under this scenario many more people will utilise the Banks existing offer to allow interest only mortgage payments or even defer payments altogether for six months, but it’s not out of the question that the Government could also move to force banks to hold off on any default action for a set period of time in the same way that they have done for rental accommodation, perhaps backed up by a form of government guarantee. Under this scenario, and assuming these actions are taken in response, the impact on house prices would still be minimised as the risk of home owners selling out of economic necessity would have been mitigated.
Scenario 3
Enforced isolation doesn’t stem the tide of new cases which continue climbing into the hundreds of thousands, forcing the Government to mandate indefinite isolation. The scope of the problem is simply too big for the Government to protect Kiwis against the worst impacts of the virus. As a result, the economy – along with the property market – goes into free fall. The economic and social consequences of this – not to mention...

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