Auckland is experiencing a flood of expat Covid refugees escaping health risks and job losses overseas and returning home, says Auckland Council chief economist David Norman.
He says the large number of Kiwis returning home will be a "twinkle in the eye" for the housing and development industry who will see the tap for new housing has not closed.
In a wide-ranging interview with the Weekend Herald, Norman counts himself as an optimist in a sea of economists commenting on the financial impacts of Covid-19.
He predicts tough times ahead for the Super City, but "remarkably less terrible" on some fronts. A big worry is the ongoing water crisis and severe restrictions over summer. Early estimates of 14,000 jobs being affected should be treated as a conservative figure, he said.
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Norman is pleased to see Auckland's pre-Covid story of external migration driving growth and a shortage of at least 20,000 houses is being filled by returning Kiwis.
He assumed a third of the 20,000 people who have been through quarantine in the past three months are settling in Auckland, which equates to about 30,000 people in a year. This is similar to the number of migrants in a year.
A lot of these people are young people returning from their OE, who will likely live with parents and friends, not have a job or money to buy a house.
Over time, said Norman, the inflow will be good news for developers to reassess their plans and run the numbers.
Right now though, he said the banks will be cautious about lending money until they know what is happening to house prices in the longer term.
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"When in the history of New Zealand have we had a situation where basically a market stops operating for five weeks. For five weeks no one could go to an open home. No one knows what a house is worth until you come out of Covid and the market re-establishes," Norman said.
He said the commercial property sector had turned before Covid with the completion of the huge Commercial Bay and Newmarket mall developments and nothing of that scale in the pipeline.
Covid had compounded matters with rising unemployment and people working from home. As a result, businesses need less space and will be negotiating leases over the next few years, said Norman.
"I suspect we will see weakness in commercial. The one exception might be around industrial and storage. That has been a growth sector in Auckland for several years now," he said, citing the growth in online shopping.
Norman said he had no data on the Auckland CBD, but it was undeniably true the lack of tourists, international students and fewer workers was worrying and a real challenge.
Having talked to many of the larger firms in the CBD, he said many were moving to more of a mixed model where people are perhaps in the office half the time.
Norman said Auckland and New Zealand's fundamentals were strong in the lead-up to Covid with growth in the mid 2 per cent, unemployment in Auckland at 4 per cent, the city had seven million guest nights a year and surging house prices.
It was a different picture, he said, to the Global Financial Crisis of 2008 with dodgy lending overseas and poorly handled credit ratings.
When New Zealand headed into Covid, Norman said, there was a lot of doomsday talk, but things are panning out far better than even the more optimistic commentators,"of which I happen to be", said Norman.
Starting with the bad news, he said unemployment has risen to well over 6 per cent in Auckland and will continue to rise to between 8.5 per cent and 9 per cent at the end of the year. That equated to tens of thousands of local jobs.
"It is a terrible outcome but for a while there it looked a lot worse."
On the good news front, Norman said house prices as an indicator of confidence are down by a smidgeon in Auckland, albeit low volumes.
"I think prices will fall further. I suspected prices would fall 5 to 7 per cent this year. Other commentators were saying up to 15 per cent. Most of the banks were in the 7 to 15 range.
"I'm now thinking 7 per cent is max and it's probably more like 5 per cent. House prices have held up remarkably well," he said.
Norman said there were huge jobs losses through level 4 but the growth in joblessness has slowed to a trickle.
"It is still going up, but we were talking 12, 13 per cent . . . but with more stimulus from the Government in the Budget and moving to level 1 early, it looks as if unemployment is not going to pan out as bad as we were thinking."
At Auckland Council, where the "emergency budget" is forecasting a $50 million hit from fewer resource and buildings consents, Norman said things are much better than anticipated.
There's still a big drop in development activity, he said, but better than anticipated.
David Norman is no meteorologist or water expert, but knows when the city is in deep water.
The chief economist has been working with Watercare to understand what the severe drought and water restrictions means for business and jobs if things don't improve.
Norman has calculated 1000 jobs in the car wash and water blasting industries are already affected by the drought and on very early estimates between 6000 and 14,000 jobs could be affected over summer.
These numbers are conservative because they only cover a couple of manufacturing sectors, food and beverage, and glass/concrete/plastics/metal. They also include car washers and water blasters.
He has still to consider the impact on hotels, cafes, restaurants and office blocks, which might not be able to operate fully or at all under tighter restrictions.
Under an alert system set up by Watercare there are four stages of restrictions based on falling lake water storage levels.
Auckland is currently in stage 1 with no water savings required by business. Under stages 2, 3 and 4, businesses must cut water use by between 10 per cent and 30 per cent.
Under these restrictions, said Norman, major water users will have to cut production by between 14 per cent and 40 per cent with a midpoint of about 20 per cent.
Norman has been having confidential meetings with major water users over the past week to try and understand what a 14 per cent to 40 per cent cut would mean for production.
Some companies have already reduced water usage and believed they could manage shifts and potentially go down to a four-day week.
"Others have said anywhere from 15 per cent to 30 per cent of their workforce would lose their jobs," he said.
Norman said the water restrictions will also affect manufacturers' supply chains, not just in Auckland but the rest of the country.