Opinion: A surging inflow of migrants is just the latest economic indicator pointing in the direction of rising house values

If a commodity is in short supply then the last thing you want is even more people turning up wanting to buy that particular commodity.

It is called supply and demand. Increase the demand without increasing the supply and up go the prices. That is the situation New Zealand is now finding itself in with its rapidly heating house market.

On top of the shortage of houses in Auckland, the super-low interest rates, and a swiftly recovering economy, we now find that the population's starting to surge through migration.

According to Statistics New Zealand the country had its largest monthly net migration inflow for over three years in May.

The main reason why the migration figures are turning around is that fewer of us are jumping the ditch to seek fame and fortune in the land of plenty, because just at the moment Australia's looking like the land of something-less-than-plenty, while New Zealand's beginning to look like the land-of-more-than-it-has-had-recently. So, more Kiwis are staying at home.

In May a net 1945 people bought the one-way ticket across the Tasman. That's down 38.4% on the number making the trip in May last year. For the 12 months to May there were 32,862 long-term migrants to Australia, down 17.1% on the number emigrating over the previous 12-months.

At the same time the number of immigrants have blipped up a little, with the figure for total migrant arrivals in the 12 months to May this year rising by 4.8% to 87,778 - the highest figure in a May 12-month period since the nearly 89,000 figure in 2009, which was itself the highest number since 2003 - very much at the start of the last housing boom, as it happens.

The overall net growth through migration of 6242 for the 12 months to May is not a huge figure - certainly not when put against the 42,000-plus surplus in 2003 - but the trend is very much turning in favour of more migration gains in future.

That 6000-plus figure represents a turn-around from a net loss of over 3600 in the previous 12-months to May 2012. The seasonally-adjusted net migrant gain in May 2013 of 1700 indicates a current annual net migration growth rate of around 20,000 per year.

Some perspective

To put that in some sort of perspective, New Zealand has topped a 20,000 net migration figure in a calendar year only once (2009) since 2003. The big gain in 2009 was very much down to thousands of Kiwis staying home after the Global Financial Crisis. If you look at the last 20 years, only five times has the country seen a net migration gain of more than 20,000 during a calendar year.

So, what does all this mean for a New Zealand housing market currently seeing price inflation running at 8.7% and more to the point, an Auckland market with house price inflation just shy of 15%?

Reserve Bank Governor Graeme Wheeler in a speech recently laid out the risks to the economy and inflation from a rising house market and indicated the central bank was looking a placing "speed limits" on the amount of lending banks could do to customers with deposits of 20% or less of the value of the house they were seeking to buy. See here for details of our articles on the bank's new "macro-prudential tools".

In response to a perceived 30,000 current shortage of houses in Auckland, the Government and Auckland Council have agreed a housing accord, with a target (hugely ambitious and to be honest, barely credible) of 39,000 new houses over a three-year period. See here for articles on the housing accord.

Years to catch up

Even if the accord does get up a running in a timely manner - and remember the Auckland Council and Government are currently at odds over the proposed enacting legislation for the accord - it will take years for Auckland to catch up on the shortage.

So, into this environment, we now add the likelihood of a population surge due to migration. It all adds up to increasing pressure on the Government and on the Reserve Bank - which I think will have to move more aggressively on interest rates sooner than most people currently think and more aggressively (IE bigger hikes) than most people currently think. I reckon we will get a rise in the Official Cash Rate before the end of the year - even though the RBNZ has said that won't happen.

The only slight positive to come from the migration figures is that, so far at least, the influx is not heavily focused on Auckland. Obviously, if it was to be, then the squeeze would really be on the Auckland house market.

In the 12 months to May Auckland had a net increase through migration of 4687 people. That compares with the national increase of 6242, so sounds like a disproportionately high share of the total. But if you look at the trend, the latest figure is actually down from 5085 in the year to May 2012 when, as you may recall the entire country actually had a net loss of over 3600 people. It is worth briefly mentioning that the rebuild in Canterbury is having a big impact there, with the region seeing a net growth in migrants of 2558 in the 12 months to May compared with a net loss of 2520 in the previous 12 months.

Figures not growing

But back to Auckland. To look at just arrivals for a moment, Auckland has bounced around between 33,000 and 35,000 arrivals every year since 2009. The figures are not growing. In the latest 12 month period the number of migrant arrivals into Auckland rose by just 40, while for the country as a whole the figure was up by just under 4000. The 35,127 migrant arrivals into Auckland during the 12 months to May made up 40% of the country's total arrivals. Now, that is a higher proportion than Auckland's population is to the national population (it's around 34% of the total), but the percentage of Auckland migrant arrivals compared with the county's total has fallen in the past year from nearly 42% the previous year.

In addition, the number of migrant departures from Auckland has increased in each of the last three May 12-month periods, with the 30,440 departures from Auckland in the 12 months to May 2013 making up 37.3% of the country's total, which is the highest percentage of the total number of migrants that Auckland has contributed to the nationwide total for at least the last 10 May years. 

So, as far as Auckland's concerned the migration pressures could be worse, but there's no doubt that even though the proportion of migrants arriving into the country's largest city is not increasing, even the current numbers coming in will add to the housing problems. And Auckland's housing problem will continue to be New Zealand's housing problem.