Migration figures could disappoint speculators

Felix Delbruck – 

Net migration has reached record highs, thanks to a rising in flow of foreign migrants and a drop in the outflow of New Zealanders.

Weak offshore   labour markets particularly in Australia could keep net migration high for a while yet.

Strong  net migration in the near term is one reason we expect unemployment to rise over the next year.

But over the longer term, we expect net migration to fall back towards historical averages, as the economy cools, overseas labour markets improve, Auckland’s housing shortage worsens, and residence approval targets start to bite.

Slowing net migration could disappoint property speculators and other businesses counting on rapid population growth.

Over the last three years, net migration has risen from an annual outflow of more than 3000 people, to a net inflow of more than 60,000, accounting for 1.3% of New Zealand’s population.

We find the recent migration boom has reflected offshore drivers – from the weak Australian economy, to the growing number of international students and working holiday makers – as much as local ones.

Unemployment grows

That suggests net migration could stay high for a while yet, even as the New Zealand economy slows. In particular, until the malaise around Australian job and earning prospects lifts, a renewed exodus of New Zealanders on the scale we saw back in 2011 looks very unlikely.

This is a double-edged sword for the economy. It will support growth across New Zealand’s regions, but will also limit migration’s ability to act as a ‘safety valve’ in an economic downturn. We expect unemployment to rise to above 6% over the coming year, and continued high population growth is one of the reasons.

That said, the current rate of population growth does look unsustainably high. Most recent offshore migrants have come to New Zealand on temporary visas, and many will return home over the next few years. For those that intend to settle in New Zealand long-term, doing so will depend on their ability to obtain work, affordable housing, and a residence visa – all of which are in limited supply. And the number of New Zealanders leaving for Australia will rise eventually, as the Australian economy recovers.

Normal levels

That suggests that beyond the next year or two, it is worth planning for a return to historically more normal levels of net migration, closer to 15,000 a year than 60,000. Such a slowdown would not eliminate the need for a significant further ramp-up in building activity in Auckland, which to date has not been sufficient to meet even average rates of population growth.

But it could come as a surprise to those who have been banking on recent high rates of population growth continuing for years to come.

Auckland property prices have been showing increasing signs of being driven by speculation on future capital gain. A migration slowdown could be one factor leading to doubts that Auckland house prices will keep marching higher.

No Aussie benefits

What has attracted recent migrants?

Less than half of the turnaround in net migration since 2012 is due to overseas migrants coming into the country. Most is due to Trans-Tasman movements of New Zealanders.

On average over the last three decades, about 28,000 New Zealanders have emigrated each year, mainly for Australia. But the number leaving and returning in any given year is highly sensitive to the health of the Australian job market, while New Zealanders are free to live and work in Australia, since 2001 they have been ineligible for most Australian welfare benefits.

The last few years have been no exception, with 21,500 New Zealanders leaving for Australia over the past year – the lowest since 2003 – and 16,000 returning, the highest on record since the late 1970s.

Surprising returns

If anything, we have been surprised by the sheer number of people coming back.

It is hard to pinpoint a special reason for this, and we suspect perceptions of economic prospects in Australia have simply soured to an unusual degree since the end of the mining boom. The turnaround has been remarkably broad-based – people across the age spectrum are less inclined to move to (or stay in) Australia, and most regions of New Zealand are seeing stronger population growth as a result. And with about 600,000 New Zealanders currently living in Australia, the number of people returning home could stay high for quite a while yet.

At the same time, the net inflow of offshore migrants has risen to a record high of 65,200 over the past year. Most of these migrants have come on temporary visas, as migrant workers or international students.

Felix Delbruck is a Senior Economist at Westpac. The above is an extract of an extensive article on Immigration published by the Bank on October 8, 2015. Another portion of the analysis appears as ‘Guest Editorial’ under Viewlink in this issue. For full text, please visit www.westpac.co.nz

 

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