Andrew Whiteford argues too much has been made about regional inequality when we have strong provinces with good economic prospects

By Andrew Whiteford*

Over the past year we have heard much about regional inequality, with the term “Zombie town” popping up every few weeks in the media.

The debate has contributed to the perception of growing, prospering cities and declining rural areas.

It should come as no surprise that regional inequality exists. The provinces can never attract significant concentrations of the high-paying professional jobs in finance, business services, and telecommunications.

We need to accept that incomes in the cities and provincial areas will never be equal.

Although the provinces are unlikely to ever match the cities in terms of the incomes they offer, many provinces have been performing strongly.

In an earlier article, my colleague Benje Patterson challenged the notion of regional inequality by comparing growth performance across all territorial authorities. Using the Infometrics regional data base, his analysis shows that the top ten fastest-growing territorial authorities on a GDP per capita basis over the ten years to March 2013 were all in the provincial heartland.

Another angle we can take to understand regional inequality is to compare ourselves to our peer countries in the OECD.

How does regional inequality in New Zealand compare with other OECD countries?

An article in The Economist highlighted the wide gap between rich and poor regions in many developed countries.  The Economist correctly points out that regional data comes with health warnings.  Comparing regions across countries is difficult due to differences in sizes of regions.  The Economist mainly uses the OECD “small areas” of which there are more than 100 in Britain with an average population of about 600,000.  These “small areas” are somewhat comparable with New Zealand’s Regional Council Areas, which enables a rough comparison.

By comparison to the countries featured in The Economist article, New Zealand has the lowest level of regional inequality. GDP per head in New Zealand’s wealthiest region is only 2.3 times higher than the poorest region (see the chart below).  Britain has the widest disparity, with average GDP per head in central London nearly ten times larger than in parts of Wales.

Apart from New Zealand, Italy and Germany have the smallest regional spread, yet GDP per head in their most affluent areas are still almost three times those of the poorest.

Not only is New Zealand’s regional inequality the lowest among the comparator countries, but it has also been declining over time. Regional inequality peaked during the Global Financial Crisis in 2008 and has been on a downward trend since then. In 2001, the highest GDP per head was 2.9 times more than the lowest. By 2013, this ratio had dropped to 2.7.

So why does New Zealand have a narrower regional gap than other OECD countries?

Although there are undoubtedly pockets of desperation in the provinces, generally speaking the provinces have performed well economically.

New Zealand’s rural areas are supported by a strong agricultural sector and have benefitted from very high productivity growth in the sector. Indeed, over the last 20 years, the agricultural sector has achieved productivity growth only exceeded by the communications industry, the latter being driven by very rapid technological advances in telecommunications.

In contrast to very rapid productivity growth in the agricultural-based rural areas, New Zealand’s cities have struggled relative to their international comparators.

Productivity growth in business services, a major contributor to growth in New Zealand’s cities, has been disappointing. Two New Zealand cities have recently fallen out of the top 50 global city rankings. In terms of GDP per capita, Auckland is far behind its comparator cities in the Asia-Pacific region. 

New Zealand’s cities lack the scale of the Australian and Asia-Pacific cities and have consequently not been able to sufficiently capitalise on the benefits of agglomeration. New Zealand’s largest city, Auckland, can only compete with second-tier Asia-Pacific cities such as Brisbane and Adelaide, and has lost financial institutions, corporate headquarters, and a number of promising IT firms to Sydney and Melbourne.

A further contributor to low regional disparities is New Zealand’s mobile workforce, which can move from areas of high unemployment to low unemployment, thus evening out unemployment and its contribution to low GDP per capita.

There is considerable evidence that Kiwis are highly mobile and move to where the jobs are.

Southland experienced some hard economic times during the 1990s and, as a consequence, many of its residents moved out in search of employment in other parts of the country and around the world.

Labour mobility has kept its unemployment down and GDP per capita up, despite its below-average economic performance.

Too much has probably been made about regional inequality in New Zealand.

Although there are pockets of decline, indeed desperate decline, that need the full attention of policymakers, on the whole our provinces are holding their heads up.

We have strong provinces with good economic prospects as the demand for high-quality agricultural products around the world continues to grow.

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Andrew Whiteword the managing director and a senior economist at Infometrics, and is is responsible for Infometrics Regional Service.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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23 Comments

"Too much has probably been made about regional inequality in New Zealand."
I agree.
Looking at how unequal the GDP spread is in the UK compared to NZ shows how non-sensical it is to try and think Auckland is in any way shape or form, or ever will be anything like our version of London.

Purely on usually resident population, the top ten growth areas in New Zealand July 1 2006 - June 30 2013 were:
 

  • Selwyn: peri-urban district south of Chistchurch, beneficiary of poor post-earthquake decision-making by CCC
  • Queenstown-Lakes: tourist town
  • Waimakariri: peri-urban district north of Chistchurch, beneficiary of poor post-earthquake decision-making by CCC
  • Carterton district: don't know; suggestions anyone?
  • Ashburton: dairy conversions but within commute distance of Christchurch (just)
  • Waikato: peri-urban district on upgraded SH1 nestled between NZ's largest and fourth largest cities. Beneficiary of Auckland City's restrictive development policies
  • Hamilton City: dairy industry and beneficiary of Auckland City's restrictive development policies
  • Waipa: peri-urban district on upgraded SH1 nestled between NZ's largest and fourth largest cities. Beneficiary of Auckland City's restrictive development policies
  • Tauranga: NZ's busiest port and destination for cashed-up former Auckland property owners
  • Hurunui: growth mainly in Amberley within commute distance north of Chistchurch, beneficiary of poor post-earthquake decision-making by CCC

 
7/10 "heartland" areas are clustered around Auckland and Christchuch.
 
How's the actual heartland going?
 
Nine places didn't trouble the scorer: Rotorua, Stratford, South Taranaki, Dunedin, South Waikato, Central Hawkes Bay, Lower Hutt, Clutha and Gore.
 
Eleven districts went backwards: Whakatane, Wanganui, Westland, Christchurch City (OK special case), Kaikoura, Waitomo, Tararua, Rangitikei, Opotoki, Wairoa, Kawerau, Chatham Islands, Ruapehu.
 
Now that looks like the membership list of the heartland not the Top Ten

Updates:
 

  • Stats NZ have released their Commuting Patterns in AKL showing that 5,000 people travel to work in Auckland each day from Waikato District and 2,000 from Hamilton City. 
  • Waipa District is, of course, south of Hamilton City

 
The danger of using GDP per capita is that both the numerator and demoninator can move independently of each other. In a rural area with a fixed amount of farming, and where the story apparently is one of increasing productivity in agriculture, a decline in population and economic activity can still lead to an increased GDP per capita. A smaller pie shared amongst even fewer people is not a rosy picture.
 
For "fun" I did a coloured map of NZ using different shades for the different rates of population growth. It's a stark visual reminder that between Hamilton and Wellington there is very little to cheer about.

Post your map via one of the image hosting sites (image shack etc) and post the link be interested to see.
I know from the regions I follow that New Plymouth, Napier, Palmerston North and Kapiti/Levin have seen solid growth just below or around the 1% p.a mark in most of those cases. Smaller regions you mention that are going backwards are actually very small, i.e population of a few thou, so losing a 100 people to a larger town is a big hit in % terms (eg Tararua, rangitikei, ruapehu, even wanganui has seen people clustering to larger nearby cities of N.P, P.N that have employment

Ok Simon:
 
North Island
Sth Island
 
Key (ave annual growth 2006-13):
 
Purple : -ve growth
Blue: 0 - .4%
Green: 0.5 - 0.9%
Yellow: 1.0 - 1.4%
Orange: 1.5 - 1.9%
Red: > 2.0%
 
I agree the problem with population stats is that some districts are tiny (MacKenzie, Hurunui, Kaikoura, Kawerau etc) and small changes in estimated population can show up as rogue stats.
 
Coloured maps are also misleading. Most of the growth in Hurunui is right at the southern end near CHC. And I'll bet all of the growth in Waipa is close to Hamliton.
 
To me the big story of these maps is the obvious one of the Whangarei-Auckland-Hamilton corridor

Thanks for that.  Nice colouring in  skills!
Yeah definately a lot of immigration starting and spreading from Auckland. 
Anything growing in the 0.5-1.5%+ range (green, yellow, orange) is going to be putting pressure on cities to keep freeing up land; naturally developers will go to where the rewards are greatest (auck) to increase supply there first, then over time the 0.5-1% growth regions will build with population pressure slightly later and the supply response will likewise happen later.

Proud graduate of Greenock St Kindergarten!
 
I am a frim believer that if you build it they will come. Auckland is not doing a great job of managing growth. It needs to get pro-active about putting in transport infrastructure in particular if it wants to take the heat out of its property market. Instead it is farting around with toy trains that may or may not get built one day.
 
In the meantime the peiople who want to live and work somewhere today are spreading out along the highways. That to me is the Waikato District story. We have seen it in post-quake Christchurch. CHC residents are buying up large from Amberley through Woodend/Pegasus, Rangiora and Kaiapoi to Rolleston/Darfield. Effectively they are moving along the State Highway network.
 
And as NZTA complete the McKay's- Peka-Peka Expressway and get on to Transmission gully we will see a significant lift in growth in Kapiti Coast but especially Horowhenua.
 
People just aren't prepared to wait for councils to laboriously get around to providing for growth,.

Thank you Kumbel. Your comments about Auckland not doing the job on infrastructure are spot on. (and the colouring is excellent)
Auckland is not coping, is not an affluent town, and can't support itself even. "Zombie City" would be a suitable title.  Like frogs, they have been slowly boiled, but have not noticed the problem.  They have not worked out they have no money.
It's many many decades since I was a schoolboy in Auckland.  I was very interested in the rail loop then and used to follow it avidly in the Herald.  Finger to the printed map and every time I went to town I was looking at where it was supposed to go.. 
Despite all the wriggling and deep discussion the reality was Aucklanders could not bring themselves then to pay for it.   They were not wealthy enough then and they are not wealthy enough now.
Forty years later the same dithering goes on.  I don't believe they will or can do it.
Meanwhile in the provinces people are living in fine houses they can afford, producing and exporting, and keeping the country going.

I have added in the provisional population estimates to June 30 2014 to the tables I was using before There is no change to the coloured pictures when you calculate growth rates for the last 8 years. But there are some interesting changes when you compare the last year with the previous 7 seven years.
 
Thre are one or two areas that appear to be tanking. Buller and Grey, for understandable reasons, have flipped to the negative. But in the last year that hollowing out of population in the heartland appears to have stabilised. Many of the decliners have crawled back above the line. Bearing in mind that we postponed the 2011 Census that trend may have started a little earlier in real life than the numbers would suggest.
 
At the other end Auckland and Waikato District are now running well ahead of previous averages. Hamilton City is ahead of averages too but Kaipara, Whangarei and Waipa appear to be going slightly off the boil.

Thank you Andrew.  But I do get the idea that people, and maybe, even you "just know" our cities are doing well, despite the evidence.
From my frequent visits to my former home town of Auckland my view is that there is a lack of cash in people's pockets.  It's a poor town.
Look at the list of Otago schools in respect of decile ratings.  According to that scheme about 10% of the nations schools are placed in each decile.  1 to 10. 
http://www.minedu.govt.nz/Parents/AllAges/EducationInNZ/SchoolsInNewZealand/SchoolDecileRatings.aspx
Has to be over a hundred schools on that Otago list.  I could not see single a decile one in Otago. (the poorest)  Nor a single decile two.  I found a decile three and a couple of decile 4.  Everything else was decile 5 or higher. 
So, given 20 percent of our nations schools are decile 1 and 2.   Where are they over represented.  South Auckland ?
 

My feeling is that Auckland is having severe growing pains and the zombie town thing is to justify continued immigration (isn't that the proposed cure?).

What happens to Auckland when you take out people servicing (population ponzi)?

They go to another city..like Tauranga. All towns/citys in new Zealand service people thats the whole point of them.

"All towns/citys in new Zealand service people thats the whole point of them." is rhetoric
....

Melbourne appears to be booming. Job growth is far more rapid than in Sydney. This article shows that Melbourne's economy is being driven by population growth and that most job growth is in the city-building and people-servicing industries. The city's apparent boom is obscuring its poor performance in exports to international markets. When export and imports are taken into account, the growth in per capita gross state product in Victoria is the slowest of all Australian states and territories since 2000-01. Melbourne is becoming increasingly dependent on external support.
http://www.thefreelibrary.com/Melbourne%3A+a+Parasite+city%3F-a0242963663
National is deliberately trying to increase Aucklands population to achieve agglomeration benefits. The Royal Commission on Auckland Governance suggests that these will not be large and that there will also be negative effects. I smell a rat

[Quote]

While immigration played a key role in house inflation in the three years after 2001 (Reserve
Bank 2007), it is unknown to what extent on-going immigration continued to drive price rises.
The housing boom has meant good profits for many New Zealand companies supplying
materials and building services, but it implies investors would rather invest in their country’s
homes rather than its businesses (Bollard 2005). The high returns for property has attracted
finance and reduced the capital available for productive investment (Moody, 2006). The
consequence is investment is going in to industries with limited capacity to increase per capita
incomes. For example, real estate and building are domestically bound and do not have the
market potential of export industries. They also have less opportunity to increase productivity
through new processes and products. The irony is, as these sectors grow, they have incurred
skills shortages which in turn has increased demand for skilled immigrants. The Department
of Statistics ‘Long Term Skill Shortage List’ of 28/3/2006 includes carpenter/joiner, plumber,
electricians, fitter and turners, fitter welders; all indicative of a nation building its
construction/property sector.
There is a danger that a sector of the economy is being augmented that is totally reliant on a
small domestic economy. Not only do these industries have limited potential for per-capita
growth but ‘deriving growth via factor inputs such as labour places pressure on infrastructure
such as transport and land supply, and ultimately have a further negative impact on growth
(ARC 2005). Finally, as the sector gets larger, it gains in lobbying/political strength and can
lobby for immigration regardless if it is the best interests of the economy as a whole. This
could be seen in Canada where the development industry has lobbied hard for high sustained
immigration levels (Ley and Tutchener 2001)."
Dr Greg Clydesdale Cost and Evaluation of Human Capital.

You can't look at what is happening in Aotearoa from an economic point of view without looking at vested interests.
Some rather strange as demonstarted by this response to Distinguished  Professor Paul Spoonley (Royal Society) and Godfather to NZ's left-wing journalists (of which there are plenty):
What Diversity Dividend?
"Fantastic piece. Thanks so much.
Vancouver’s experience is probably like Canada’s on the whole. Trudeau brought in multiculturalism by federal directive in the 70s (“Although there are two founding peoples there is no founding culture…” and that mirrored Laurier before him…) Then in 1982, multiculturalism was enshrined in the Charter. Then in the mid-80s a Conservative PM enacted the “Multiculturalism Act”.
Now in Canada’s large cities it’s somewhat amusing to hear people speaking English. Fourth generation Canadians are seen as an amusing relic. Do you eat roasts? Do your parents wear sweaters to dinner and talk about classical music, ha ha ha?
The reality is that in NZ, the hegemony of Anglo Saxon culture refuses to die. The Interfaith dialogue was a fantastic example of that. Also, we never had (much) immigration from Central, Eastern or Southern Europe. We still treat South Africans and Pomps as “one of us”.
Most people that run this country (wealthy baby boomers) grew up not knowing anyone from different cultures and didn’t travel much when they were young. There is still a serious fear of the unknown. Let’s be honest, we NZers didn’t travel at all until very recently. There were really no coffee shops or restaurants in this country until the 90s for chrissake. How can you expect the political class to suddenly embrace all these different people?
That MP from Rodney would have had to flee the country in Canada after making jokes about fruit pickers during an election. The current PM didn’t even growl him let alone cut him loose. That would have been hanging offence #1 short of having kiddie porn or eating one’s young.
The truth is that non-white and non-English speaking immigrants to this country feel no particular sentimental loyalty to NZ. Most of them I speak to, and I speak to many, want to move to Aussie/Canada/USA. On a cynical realpolitik level, they are a somewhat unclaimed cohort of voters.
The magic that Trudeau created was that almost all of the immigrant communities in Canada became loyal to the Liberals.
In reality we suffer from the lamest form of racism: we’re kind of embarrassed by their accents and funny foods. At worst, we have Winston. At least Melissa Lee properly slammed Winston in her maiden speech.
It was on that basis that I felt Shearer’s election was a failure. Helen got the nod and it was a big deal that it went to a woman. Then it reverted to a physically capable, heterosexual, white, educated and wealthy male. Yipdee fucking shit.
And we struggle to even begin the process of developing an active and inclusive multiculturalism."
...
I'm told Spoonley had Dr Geg Clydedale removed from Massey?

I was being sincere and you lost me at smell a rat?

I was talking about the motivation behind government policies.

Thanks, will spend some more time reading your posts and links, some great points.

Is GDP the best measure of value to the country?  We can all see what is going on in Auckland.  In large part it is a ponzie ecconomy based on providing for an ever increasing population fuelled by internal and external immigration.  Take away the population growth and I suspect that the whole bubble would implode and Auckland could not survive without heavy reliance on the export earning heartland.  At some point heatland NZ supports Auckland anyway because their contribution to exports is very mimal compared to their imports.  (both in physical good and capital)  Do all the high salaries paid to the finance/investment sector really add any significant value to our ecconomy.  To sum it up GDP includes all the overheads of running the country in a model where the value of exports minus imports (or import replacement manufacture) is the profit.  Ie GDP counts the costs of our inneficiency as a positive contribution to the ecconomy.

Growth Busters on Massey University (and Westpac's) Drive to increase the population

Population Needed to Drive Economy…off a Cliff
Massey University and Westpac (a huge bank) are holding two forums this week on population trends in New Zealand. Seems like a good idea, so why is this on the Wall of Shame? Maybe the breakfast forums will offer a more thoughtful approach to population and its role in achieving sustainable equilibrium, but this news announcement from Massey University presents an uninformed perspective:

Yet another academic who cant see the bigger picture so we need to grow for ever, on a finite planet......oh boy.
 
regards

If population growth is so important, why:
are prices still rising overall
are peoples freedoms less
are many people working longer hours
rates, government and other fixed costs rising

IF increased population past a peak point was production and worthwhile those things would not be happening.  Know the tree by the fruit, not by the BS academic (who will change his colours when profits blow the other way)

The problem is not economic but social ;)