By Jason Krupp*
Let’s engage in an absurd exercise. Do immigrants, just in coming to New Zealand, make apples more expensive? The answer is no in the grand scheme of things. Sure, if a group of apple-loving foreigners was big enough, demand would exceed supply, and the price would rise in the short-term. But that price rise would attract producers and sellers, supply would pick up to match demand, and pretty soon the price spike would subside.
This is not a unique feature of apples. The same applies to haircuts, cars, toasters, and pretty much any good or service imaginable. So if migrants don’t make apples more expensive (or just about anything else) just by coming here, why do so many people think that they’re the cause of New Zealand housing crisis? It is probably because house prices, particularly in Auckland, have hit new record highs at the same time that immigration has.
But, as Rachel Hodder and I discuss in our recently released report, The New New Zealanders: Why Migrants Make Good Kiwis, correlation and causation are not the same thing. High levels of migration will increase accommodation costs, but they are not the source of the problem. As work by the Initiative and other organisations has shown, it is our regulatory system that prevents the housing market from working like the market for apples.
In an ideal world, the underlying market systems would automatically adjust, such that as demand for accommodation rose and prices increased, developers would build more houses. Likewise, cities would invest in infrastructure to accommodate more people. But laws like the Resource Management Act, Building Act, Land Transport Management Act, and Local Government Act have all choked off the markets ability to respond to rising demand.
Quite simply, closing New Zealand to migrants will do little to fix this regulatory logjam.
But even given a broken planning system there are other reasons to support the notion that migrants are not causing the housing crisis. Economists Bill Cochrane and Jacques Poot surveyed available evidence on the impact of net migration in New Zealand, and don’t find that migrants are to blame for Auckland’s housing woes.
Instead their work points the finger at native born New Zealanders as the likely culprits.
There are three parts to this, and all are linked to New Zealand’s healthy economic growth. Official data shows that 37,000 native born New Zealanders and Australians arrived in New Zealand in the 12-month period to June 2016. Many of these are people looking to resettle or settle here because their economic prospects are better in New Zealand than abroad.
The other factor is the flow of Kiwis who traditionally move overseas on the OE or to seek the fortunes in other countries. The data shows that these people are not leaving in the same numbers as they have previously because the foreign pastures are significantly less green since the Global Financial Crisis. In 2015–16, almost 26,000 Kiwis left the country for more than 12 months. This was much lower than the 36,000 Kiwis who left in 2002, and the 50,000 in 2012 in the wake of the Christchurch earthquakes. The net loss of native-born New Zealanders in 2016 was 3,200, the lowest in the current permanent and long-term (PLT) data series.
Third, New Zealand’s recent economic performance has also boosted consumer sentiment among native-born New Zealanders. This has a further factor stoking demand for houses.
By comparison, high inbound PLT migration had a minor impact on house prices. That is because while many migrants are captured in the PLT migration data for staying in New Zealand for more than 12 months it does not mean they are moving here permanently.
A foreign student, while a renter of accommodation, is generally not looking for or is in a position to buy a house. The same is true for PLT visitor and work visa holders. Collectively, these three categories accounted for 58% of all PLT arrivals in 2015–16. Of course migrants will compete with native-born New Zealanders in the rental market, but the inability for business to meet supply is the problem, not the demand.
This is an important argument that needs to be heard in the debate about immigration. Too often we are willing to scapegoat outsiders for our problems, when the root cause lies closer to home. This seems to be particularly the case when it comes to housing affordability.
Instead of turning to immigration policy to fix the housing market, we need to instead turn our attention to the red tape that stops houses from being built. It is high time that houses started behaving like apples again.
*Jason Krupp is a Research Fellow at The New Zealand Initiative, which provides a fortnightly column for interest.co.nz.