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’."
57 Comments
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
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.
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!
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.
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.
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!
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.
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
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.
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.
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.
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.
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.
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.
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…
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.
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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