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Migration gain, with students from India significant, having more subdued impact on house prices than in previous immigration boom

Migration gain, with students from India significant, having more subdued impact on house prices than in previous immigration boom
Ex-Black Caps captain Stephen Fleming (pictured back left) helps promote NZ in India.

By The Treasury*

This special topic examines the composition of the current migration cycle using disaggregated permanent and long term (PLT) migration data and its impact on the macro economy.

In sum, we find that:

- Fewer departures were the key driver of the current cycle initially, but increased arrivals are now a key influence.

- As a result of the age composition of arrivals, the contribution to the labour force is likely to be higher than in the past cycle.

- The composition of the net inflows also suggests that the pressure on housing demand may be weaker than in the past.

Net PLT inflows are at a record high ...

Net PLT migration is at a record high with the net inflow totaling 50,900 in the December 2014 year, which compares with a previous peak of 42,500 in the year to May 2003 (Figure 1).

This is a sharp turnaround from the net inflow of 1,200 in the 2012 calendar year.

Although net PLT inflows are expected to begin easing in the first half of 2015, the annual total is likely to exceed our Half Year Update forecast of a peak of 52,400 in the March 2015 year.

Initially, fewer departures (primarily to Australia) drove the turnaround, although increased arrivals are now a key influence.

The increase in the arrival of non-NZ/Australian citizens (other citizens) is the most significant factor, with arrivals from Asia (India, China and the Philippines) particularly strong. Over history, the arrival of non-NZ/Australian citizens has played a significant role in net migrant flows and in some periods has provided a counter-cyclical offset to movements of New Zealand and Australian citizens.

Almost every region has experienced a net inflow of migrants over the December 2014 year (the exception being Gisborne), with Auckland and Canterbury accounting for 57% of the total net inflow.

The fall in departures has been the dominant driver of the annual net gain amongst the provinces, reflecting weaker job prospects in Australia and other countries more generally, although the growth in arrivals has provided a larger contribution over the past year.

A breakdown of PLT arrivals by occupation shows that the growth in the current cycle has been concentrated in machine operators and drivers, labourers, and technicians and trade workers, which would have mitigated some of the resource pressures in the construction sector.

... contributing to an expansion in the pool of available labour ...

The net influx of working-age PLT migrants accounted for 66% of the growth in New Zealand’s total working-age population over the December 2014 year.

This is considerably higher than in the early 2000s cycle when the source of growth was more equally shared between net PLT migration and natural increase in the population.

This contribution to the working-age population has consequently had a major impact on labour force growth.

To provide a sense of this, the annual growth in the labour force would have been 2.5% (versus 3.2% actual) in the December 2014 quarter if the annual net inflow of migrants was unchanged from a year earlier. This assumes that migrants’ rate of participation of in the labour force is the same as the average.

... with the composition suggesting a higher rate of labour force participation ...

However, the composition of net inflows in the past two years (ie, with a larger contribution from fewer departures) suggests that the participation rate of net PLT inflows in the labour force is likely to be higher than in the early 2000s cycle.

New Zealanders who choose not to depart are likely to be better attached to the labour force, while it usually takes time for migrant arrivals to participate in the workforce.

In addition, the age profile of the net inflow has been concentrated in groups that are more likely to participate in the labour force compared with the previous cycle.

In the December 2014 year, the proportion of net inflows in the 0-19 age group  -  who have low participation rates  -  has fallen significantly from 39% in the May 2003 year to 24% in the December 2014 year (Figure 2).

Conversely, 56% of the total net migrant inflow was centred in groups aged 20-34, compared with only 37% in May 2003 at the peak of the previous cycle. This is reflected in the large share of visas currently being approved for work and study purposes rather than for residency.

These distribution changes likely reflect several factors. The proportion of younger age groups was higher in the early 2000s owing to the surge in English-language students, and older migrants were arriving to settle as residents with their children.

Meanwhile, those in prime working-age groups  -  who are more mobile internationally -  have increased as a share given the relatively positive economic conditions in New Zealand compared to the rest of the OECD.

This has encouraged many New Zealanders to remain at home or return from overseas, while also attracting foreign arrivals. The Canterbury rebuild, which has stimulated the demand for labour from both local and international sources, is part of this.

Composition of other citizen arrivals is also distinct from the previous cycle ...

As with the total net inflow, the growth in other citizen arrivals in the 2014 calendar year has been concentrated in the 20-34 age groups, while the 35+ and 15-19 age groups dominated in the early 2000’s cycle.

A greater proportion of work visas are now approved for the 20-34 age groups  -  80% in the 2014 calendar year compared with 74% in 2004. European arrivals currently provide a much greater contribution to the annual growth in other citizen arrivals aged 20-34 year compared to the early 2000’s, which may partly reflect workers for the Canterbury rebuild (eg, from the UK) and/or a weaker euro area economy.

... particularly amongst student arrivals ...

The contribution of migrants aged 15-19 to the total growth in other citizen arrivals (working-age) about halved from around 20% in early 2000’s to 11% in the December 2014 year, with significantly fewer from Asia in this age group arriving.

This reflects the extent of the English-language student boom in the previous cycle and the increasing trend over the past decade of student visas being approved for older groups (20-29).

There was a surge in student visas (+7,500) in the December 2014 year which accounted for 61% of other citizen arrivals and 30% of the annual growth in overall net working-age migration (Figure 3).

This category was followed by work visas which contributed 26% to the annual growth in other citizen arrivals and 14% to the annual growth in net working-age migration.

The lift in student arrivals has coincided with the extension of work rights which came into effect in December 2013, making it easier for international students to work part-time and undertake full-time work during scheduled holidays.

The pathway for obtaining a work visa following graduation is also more accommodating than in the UK, US and Australia.

Students from India appear to be providing the largest contribution, accounting for 59% of the growth in student visas in the December 2014 year, followed by students from China (11%).

The increase in Indian students appears consistent with industry data from Education NZ and Immigration NZ, with the majority of enrolments concentrated in Private Training Establishments (PTEs).

Education NZ has been promoting in India as it is considered a priority market and many students are attracted by the employment pathways.

... and may mean housing demand affected to a lesser extent

PLT migration can impact on domestic demand both by raising the aggregate level of private consumption, and by increasing demand for existing houses, thereby driving up house prices and increasing household wealth.

As households feel wealthier, this can have second-round impacts on aggregate demand as they are able to draw on their housing equity to spend more on goods and services or reinvest in housing.

Preliminary Treasury analysis estimates that the composition of net external migration is important when assessing the flow-on effects on housing demand.

Overall, house prices responded more significantly to external migration than do rents, and PLT arrivals recorded a larger impact on house prices and rents than departures.

The larger impact on house prices is consistent with the fact that rents are slower to adjust and may be linked to consumer price inflation, which makes them more stable, while house price expectations amplify the response of house prices to population shocks.

A similar analysis conducted by the Reserve Bank also found that arrivals have larger house price effects than departures, and that the origin of foreign arrivals also matters.

All told, the impact on house prices and household wealth appears to be more subdued in this cycle, possibly because of the composition of the net inflows (Figure 4).

The dominance of falling departures over the current migration cycle and concentration of net inflows in the 20-34 age group suggests that the pressure on housing demand may be weaker than in the past.

However, it is possible that the strength in PLT arrivals recently may begin to impact housing demand more significantly over the coming year.

Composition is helping to explain the different impact on the economy this time

Overall, the large fall in departures in the current cycle and the age composition of the aggregate inflows reinforce that net PLT migrants are likely providing a greater contribution to the labour force than in the past.

The current turn-around is also distinctive given the large increase in other citizen arrivals aged 20-34 who now account for a much larger share of the student and work visas approved than a decade ago.

Current student arrivals are also older and have greater work rights than previously. A greater flow through to the labour force has positive implications for the productive capacity of firms, allowing the economy to produce more output without increasing price pressures.

The strong net PLT inflow will also be contributing to aggregate demand by raising consumer spending.

However, a lower concentration of the net inflow in older age groups who are typically more capital-rich could be limiting the flow-through to housing demand relative to past cycles.

--------------------------------

This article is the 'Special Topic' in the Monthly Economic Indicator report published today by The Treasury.

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9 Comments

All our swooning anti-immigration commenters should read this article. Let me summarise the key points of the migration data from the last ten years:

 

  • arriving on residence visas: down 30%
  • arriving on student visas (fixed term and earning export income for the country): up 43%
  • arriving on work visas (fixed term): up 105%

Note also that work visa arrivals have leapt 50% since the Christchurch earthquakes. Duh-uh.

 

Note also that our net migration rate is affected almost entirely by the decisions of New Zealanders as to whether thay go live on the Gold Coast or not. When the Australian economy tanks (like now) our net migration rate soars and vice-versa.

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Looking at the visa type graph in the article shows this boom is almost entirely due to students.

Massive numbers over 2014 year. All other types relatively unchanged.

student cities will boom

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Student visas are effectively immigration/work visas. 

Most international students (esp Indian) are mainly getting the student visa so at end of study they can job search for 1 year, then once employed can apply for 2 yrs and PR.  Many of them already have skills from BE and BTech degrees etc,  they just need language improvement and cultural adjustment.  

At the same time it saves the NZ Govt from fully funding universities & Techs. With 18k int fees. 

NZ Immigration are just using the universities etc as an easier immigration/points scheme.  

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Not necessarily: Eric Crampton.

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Granting Permanent Residency upon graduation would make immigration too easy really. 

Many international students 'learn' by rote memorisation and do not/cannot discuss issues, write  fresh new ideas or demonstrate hands on skills while studying.   So while they may graduate, they still have a long way to go for full integration of knowledge and skill into the workplace.  

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Also the sad issue is that many immigrant students are here because they couldn't qualify for their own countries universities and they can't afford US or Europe equivalent...  but better and more honorable than staying at home.

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I quite like this idea of giving some foreign graduates residency and for them to be on a path to citizenship. Not for all foreign university graduates but a certain allocation that the university decides on. That way foreign students who have done well at university and show signs to those that have been most involved with them over a period of years can gain residency, employment, start business, have a family.... In general do well for themselves and New Zealand.

 

It is these little ideas that when combined combat that sense of "loss of hope" that has become pervasive in todays world.

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The problem with all this immigration is that the infrastructure cannot keep up.

If you have a bad doctor you are stuck with them because all other doctors are full up.

If you change your location you cannot get a doctor in your new location

This is not crap this is my real life experiences i am facing right now.

 

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I have just gone into the BBC and seen this

http://www.bbc.co.uk/news/health-31550423

An investigation by the BBC has uncovered a national shortage of GPs, doctors deserting the profession and junior doctors avoiding what they see as an "unglamorous" career.

All these have culminated in the number of unfilled GP posts quadrupling in the past three years, which may help explain why your surgery's phone number is often engaged.

Overstretched GPs

Surgeries are certainly struggling with growing workloads.

One in Whitehaven in Cumbria opened its phone lines at 08:00, and all 49 appointments disappeared within 12 minutes.

 

 

 

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