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ANZ economists say that 'in the short run' the main impact of net immigration on the NZ economy is through the housing market

ANZ economists say that 'in the short run' the main impact of net immigration on the NZ economy is through the housing market

Higher rates of immigration into New Zealand over the next few years would be expected to generate larger house price rises than otherwise and the house price inflation increases would "last quite a while too", ANZ economists say.

They say that's not a surprise, given the findings of previous research, but they have nevertheless been running the ruler over potential scenarios to measure the impacts of different levels of immigration, in the wake of the Government migration reset last week and the earlier the Productivity Commission inquiry into immigration settings.

In an ANZ NZ Insight publication, ANZ chief economist Sharon Zollner and economist Finn Robinson have constructed economic models to look at the impacts on the economy of different levels of immigration.

"The base case we consider is our own net immigration assumption, of a gradual increase from very low levels in 2021, to just under 9,000 per quarter at the end of 2023 (or around 35,000 annually). We then model what happens to the economy if net immigration is higher or lower than we assume. The upside scenario assumes that net immigration essentially goes back to pre-Covid levels (peaking around 14,000 per quarter). The downside scenario assumes that net immigration increases only very gradually over the next few years to around 6,000 per quarter by 2026 – for example because the Government makes immigration settings more restrictive, or if Covid has reduced peoples’ willingness to move abroad, or we see considerable outflow to Australia, or some mix of these factors," the economists say.

In terms of the impact on the housing market, they say under the different scenarios, annualised house price inflation peaks at about 13% in the 'high' scenario (a total increase of 99% over five years) and 7.5% in the 'low' immigration scenario (a total increase of 72% over five years).

The housing impact

"Those cumulative numbers sound massive, but they’re well-within historical experiences. For example, house prices increased 57% in the five years to May 2021, and 98% in the five years to June 2007."

Zollner and Robinson say that overall, their analysis indicates that in the short run, the main impact of net immigration on the New Zealand economy is through the housing market, via both house prices and building consents.

"The model results suggest that housing supply does respond, but not flexibly enough to keep up with high levels of immigration," they say.

"GDP growth also rises, which is to be expected when population growth increases, but for per-capita GDP it doesn’t look like there’s a strong effect (in the five-year horizon we look at).

"We don’t find any evidence that net immigration significantly impacts wages or investment intentions, at a national level at least."

Therefore they say the clearest macroeconomic impact of net immigration for New Zealand is its impact on the housing market.

Unresponsive housing supply

"That highlights the importance of addressing the relatively unresponsive nature of housing supply in New Zealand. We simply don’t build houses fast enough to keep up with population growth (particularly following periods of strong net immigration, but also more generally), and that’s fundamentally what’s impacting the wellbeing of many Kiwis."

The economists do say it’s important to acknowledge the limitations of their analysis.

"Not all the pros and cons of immigration are macroeconomic ones – and these won’t be captured in our results. We also use a fairly simple short-term model, which can’t capture other longer-term positive spillovers that immigration can have on an economy.

"For example, some research has found that New Zealand firms which employ a larger share of highly skilled foreigners are also more likely to export their products overseas. Given that New Zealand is a small open economy reliant on international trade, that can only be a good thing in the long run.

"It’s also the case that the impact of net migration may well differ markedly between sectors, and/or between different skill and wage tranches of the labour market. And of course, like any model, it’s defined as much by what it leaves out as what it puts in. And particularly at the moment, all sorts of weird stuff is going on with the economy distorted by the closed border and last year’s immense fiscal stimulus, neither of which are in our model."

Contentious

The economists acknowledge that there are are contentious issues around immigration, and there are theoretical arguments both for and against high levels of immigration.

"For example, it’s easy to argue that immigration supports long-term growth by filling key skill gaps in industries that are innovating, driving productivity growth, and adding significant value to New Zealand’s exports.

"Alternatively, one can argue that large-scale immigration is a negative for the wellbeing of existing New Zealanders, because it can drive up house prices and suppress wages in some industries, if firms can hire large numbers of low wage workers, rather than investing in productivity-enhancing technology (which would boost the wages of existing workers).

"In practice, the economic impacts of immigration are going to depend enormously on the skills and other attributes of the immigrants concerned, as well as the mix of immigration and emigration that underlies the net figure. We’ll leave that magnum opus to the Productivity Commission and wish them luck with it. In this simple exercise, we just crunch the overall numbers to get a high-level overview, and don’t attempt to reach any conclusions about whether immigration of any given level is ‘good’ or ‘bad’."

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57 Comments

"but for per-capita GDP it doesn’t look like there’s a strong effect"

Aye, there's the rub

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Sounds like they are saying the reason the country is a basket case is because of unbridled mass immigration.

They will have the hate speech police after them in short order.

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Read the last sentence, they back pedal quite a lot. So they say a bunch of stuff, but at the end kind of say "Well we don't really know, it could be good or bad..."

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deleted, replied to wrong person

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Even without higher immigration (and low interest rates) the NZ housing market would remain pretty resilient.

It would take an awful lot to shake people's confidence in property as an investment - and nearly every NZer values owning the roof over their head.

That, in turn, explains the reluctance of NZers to sell property, despite the uncertainties of the current era (including Covid).

Few people are willing to sell out of the housing market - because they know full well that it would be a monumental task to get back in. Accordingly, most NZers are risk-averse when it comes to property - so they hold on. Property is at the core of inter-generational wealth - and, as many argue also, social status. Yuk!

TTP

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NZ, with a land mass bigger than Japan and the size of population same as Singapore, and the world's most unaffordable house prices --- This simply reflects the incompetency of all political parties that have been managing NZ since 2000.

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You realise that having a large land mass with comparatively small population makes everything more expensive, right?

We need to build comparatively more roads, hospitals, and infrastructure in general to service our population than Singapore does, and we don't have the population base to pay for it like Japan does.

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Yes, the first thing we need is another Hospital in Auckland. The one in Grafton is so full and the transport into and out of that is so screwed up with a small entry lane, blocked by oncoming traffic.
We need a good sprawling Hospital in the suburbs.

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Can I interest you in a cycleway instead?

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As long as it is pink, then yes.

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NZ just was just ranked as the 4th most wealthy country in the world.

NZ's natural resource per capita is the highest in the world.

NZ ranks no. 9 by the size of exclusive economic zones.

NZ is a very lucky and resource rich country but managed very very poorly in recent years!

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All resource-rich countries have been managed very, very poorly in recent years.

A few have tried to manage their resources better, but one or other of the superpowers - US or China - can be guaranteed to quash them. We cannot has dissent in the ranks.

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And yet we are still much better off by not having a communist government intent on dominating the population, and the rest of the world.

We can speak freely about issues - such as crop failure, political opinion, or challenging the government[i.e. Jack Ma] without fear of being arrested by the government and thought police (for now). We are not recorded and controlled everywhere we go, we don't sterilise minorities or deny their existence.

Yes, we are very lucky.

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yeah, why are kiwis complaining - housing, health care, low pay, education system, infrastructure...the list goes on. What is this new hate speech act anyway and how do you define and police it? Are we not a democracy country where we can express our opinion freely without been punished by the government.

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So, how did they manage to keep housing prices in check in the many many decades prior to say 1990? Presumably by your comment you'd suggest no infrastructure roads or public anything was built back then, a time when housing costs were in check with household incomes.

Pushing unbridled credit expansion, makes housing/land more expensive.

Now happy to debate the reasons for said credit explosion (or need for) but be in no two minds that the ONLY reason for this rampant capital investment class increases (both shares and property) is DELIBERATE credit expansion.

why have a recession & when you can simply print money instead.

Yes it will increase inequality, but that's a can we can kick down the road... HEY LOOK! LATEST SELFIE PIC!

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I'd say since 1990. However, I will give them credit for 'managing the books'.

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Agree, everything started going wrong when neoliberals with their blind faith in free market took over. An idealized view of reality that benefits the privileged only.

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"The model results suggest that housing supply does respond, but not flexibly enough to keep up with high levels of immigration," they say.

Finally ANZ is seeing some light of what I had been saying. You want more houses, you need more immigrants.

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The desirable outcome is more houses per capita. That is not achieved with more immigration.

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Looks like your math is rudimentary.

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"The model results suggest that housing supply does respond, but not flexibly enough to keep up with high levels of immigration."

Looks like your reading comprehension is rudimentary.

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As usual my dear sample, your DK syndrome are outstanding. You failed to realise that there aren't conclusive numbers given in the study to justify their statements nor do you understand differentials. You're the exemplary DK specimen that'll I love to have as a tenant.

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Sounds great! My kids would be thrilled about paying rent to a real-life clown. What properties do you have available?

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Currently all my properties are fully occupied. I'll let you know what's available when we next kick someone out.

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If you are not telling porkies, then you are the living, breathing example of why this blasted rentier class we have allowed to evolve in this country, now needs to be smashed to bits

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I think just online bickering. Both need to be ignored

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Yuck.

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after reading this last comment by CWBW, I feel like I need a shower

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Immigrants do not build new houses - they buy existing houses

Any new build effect is realised when the nouveua-riche sellers and near and new retirees sell out and exodus out of auckland and build elsewhere ie Tauranga

Another influence is the pull-through as immigrants bring in their extended families who are not highly-skilled or productive

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They also rent.
People who rent tend to be ignored on house price columns.

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They mostly rent, and usually for many years

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But they will often live with many more people in every house, which actually improves the proportion of house vs population (better than our miserable 2 and a bit), as long as they are making a contribution to delivering more houses

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Does their model assume migrants arriving with infinite amounts of money? Without a drop in interest rates - where is the extra money coming from for house prices to inflate forever?

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Haven't seen any houses listed for an infinite price. Can't be too far off though.

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That's what every house listed "for auction" is...

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The extra money will be contributed by home owners drawing on future purchasing power, and stolen purchasing power from savers and future tax payers. The last two aren't complaining much (hey, a bunch of them aren't even born yet), so it's a pretty easy win for the ponzi. I'm sure everything will be fine.

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why just focus on the lack of houses for an increase of 35,000,what about the hospitals and the staff to operate them,the schools and teachers,and maybe some extra cops.I dont think a team of 5 million is enough to keep building the equivalent of a new town every year and we need a rest.

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Exactly.
They come up with the old tripe of supply needing to be more responsive.
Well, yes - obvious. But demand is the bigger problem and as you say that is demand for social services not just housing.
We should be aiming for net migration of circa 10-20k per annum max.

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Yes we should but even that is high compared to most developed countries.

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If house prices turn out to have doubled again at the end of 5 years, we will have had a revolution.

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We need one now.

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I know what you mean, but I think a few UBI type dampeners, rent moratoriums and other sweeties will drag things out until something really breaks, like oil getting way more expensive or a decent-sized war.
We are cavemen - give us half a decent meal and we forget what the fuss was about until tomorrow.

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They shouldn't unless the OCR is kept low. I suspect in 5 years house prices will be up , but not by that much, as these things go in cycles

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Nah, we just become a third world country. Probably worst than most of the third world countries.

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I like this bit of the commentary. Nice and honest.

And of course, like any model, it’s defined as much by what it leaves out as what it puts in. And particularly at the moment, all sorts of weird stuff is going on with the economy distorted by the closed border and last year’s immense fiscal stimulus, neither of which are in our model.

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and don’t attempt to reach any conclusions about whether immigration of any given level is ‘good’ or ‘bad’.

Well how very uncontentious of them. Don't want to upset their political masters now do they?

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This is Economics 101. More demand, higher prices.
Like the pent up demand from the Lockdown now being seen for goods, if more people are let in, the demand for housing will go up. In fact, even without that, the people having saved money during lockdown may be wanting to invest in houses.
Up, UP and UP we go.

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And yet there are many economists who swear black and blue that immigration (even really high inwards migration) has no effect on house prices.

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My favourite definition of Economists : One who sees something work in practice and goes onto find whether it will work in theory also.
Unfortunately, the Economists of Aotearoa are blind to what is happening on the ground, (pun intended).

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Mr Orr supporting and promoting......now not even talking about it....can been silent on an issue bury it ...Do not be Ostrich Mr Orr.

https://i.stuff.co.nz/business/125598318/reserve-bank-sets-agenda-for-n…

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So under a low immigration scenario ANZ model a median house price of 1.4 million in 5 years.....what do you think the median wage will be in 5 years?...enough to pay more than $4400 per month in rent /mortgage?

Somehow I dont think so.

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"Not all the pros and cons of immigration are macroeconomic ones" From reading this article, I can't see any pros from a macro-economic perspective of high levels of immigration, only cons.

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why are we letting them in then?

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I'm very much looking forward to border reopening so house prices can get their next leg-up as deferred demand is normalised.

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There is still a lot of people coming to NZ with a lot of money from overseas. Look at the MIQ website - booked out in 100% till end of October. sure, not everyone comes with cash but a lot do. I have lost 2 auction against people that came from UK. They have paid much, much more than anyone working in NZ could afford. Selling apartment in London will buy you much more here.

There is shortage of land. You want to buy nice 1000m section - it will cost you. Good location, nice section, nice house - it will hold the value. They are not making any more land and NZ is pretty well placed in the current MAD world.

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There is still a lot of people coming to NZ with a lot of money from overseas. Look at the MIQ website - booked out in 100% till end of October. sure, not everyone comes with cash but a lot do. I have lost 2 auction against people that came from UK. They have paid much, much more than anyone working in NZ could afford. Selling apartment in London will buy you much more here.

There is shortage of land. You want to buy nice 1000m section - it will cost you. Good location, nice section, nice house - it will hold the value. They are not making any more land and NZ is pretty well placed in the current MAD world.

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Why are borders shut, im sure there are plenty of wealthy immigrants more than happy to pay for a spot in MIQ?

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