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Michael Reddell says reshaping our immigration policy would end Auckland house price inflation, lower our interest rates, and drop our exchange rate. And he says it would raise average incomes

Property
Michael Reddell says reshaping our immigration policy would end Auckland house price inflation, lower our interest rates, and drop our exchange rate. And he says it would raise average incomes

This article was first published on AUT's Briefing Papers series. It is here with permission.

By Michael Reddell*

Of the biggest cities in each advanced economy, Auckland has been one of the fastest growing.

Just in the last 15 years, Auckland’s population has grown by 30 per cent, while the population in the rest of the country has risen by 13 per cent.

Many argue that big cities are the way of the future, and that we should be actively promoting the growth of our one moderately- large city. And most of Auckland’s population growth these days results from our immigration policy choices.

The official aim is to bring in 45,000 to 50,000 non New Zealanders as new residents each year. It is one of the largest active immigration programmes anywhere in the world.

But recent new regional GDP data cast real doubt on whether the strategy is working. The absurdly high house prices in Auckland grab the headlines. But that problem can be fixed. Plenty of fast-growing cities in the United States have very affordable house prices, by making it easy for land to be used for housing.

Incomes are another matter. Over the 15 years for which Statistics NZ produces data, average (nominal) GDP per capita has grown much more slowly in Auckland than in the rest of the country.  Auckland average incomes were 12 per cent above those in the rest of New Zealand in 2015, but they had been 24 per cent higher in 2000.

If policymakers had thought harder about New Zealand’s characteristics, this shouldn’t have been such a surprise. Probably 85 per cent of all our exports are natural resource based (not just farm produce, but fish, oil, wine, and tourism – it is the landscape the tourists mostly come for). New Zealand is very remote, when personal connections seem to matter more than ever. Few successful companies are likely to base themselves in New Zealand in the long-term, unless they are built around the natural resource base. Using immigration policy to drive up Auckland’s population growth increasingly looks like this generation’s Think Big strategy. The 1980s version was a costly disaster. After 25 years, the Think Big isn’t shaping up well.

New Zealand can offer an excellent standard of living for a small population, based primarily on applying the skills and talents of our people to the natural resources. But that natural resource base is largely fixed. And our location makes it really hard to generate economic opportunities for lots of immigrants in ways that benefit us all. New Zealanders have implicitly recognised the limitations for decades. Huge numbers have pursued better opportunities in Australia.

It would be much better to reshape our immigration policy. We should lower the annual target to around 15000 really able people (per capita, that would be around the rate of legal immigration to the United States). That change alone would largely end the craziness of Auckland house prices. But it would also put an end to us having persistently higher interest rates than the rest of the world. And our real exchange rate would fall materially. That would create a much better climate for investment by firms that successfully take on the rest of the world, not just meet the local needs of a fast-growing domestic population. In turn, that opens up the prospect of catching up once again with average incomes in the rest of the advanced world. Perhaps then more of our people will come back to stay.

--------------------

Michael Reddell is a Wellington-based independent economist and commentator on economic and financial affairs, blogging at www.croakingcassandra.com. He recently left the Reserve Bank where he had held various economics and management positions over many years, including Head of Financial Markets and manager responsible for economic forecasting. This article was first published on AUT's Briefing Papers series. It is here with permission.

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38 Comments

Can you quantify the degree to which immigration is increasing the exchange rate and interest rates? It could be reducing rates by lowering wage inflation so the effects won't be all on one side of the ledger.

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" Using immigration policy to drive up Auckland’s population growth increasingly looks like this generation’s Think Big strategy."

There you have it. Michael's research is extremely thorough and a visit to his website is highly recommended.

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Which begs the question. Why did the RBNZ let him go?

Misunderstandings, that can only be described as acrimonious, spilled into the public arena. Read more

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Presumably because he didn't subscribe to their cherished delusions and groupthink.

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That whole leak brouhaha is deeply odd. Media plonker leaks embargoed information. Reddell does RBNZ a solid and lets them know. You'd expect RBNZ to be all 'oh crap, thanks for the heads-up', but no, they try to hang him out to dry for it.

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Time to change it! (the strategy)

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Our government has been thinking BIG as a result the mess that we currently are in. God help if they think more BIGGER.

Now the time is for people of NewZealand to think BIG as a nation and vote out national government though other too may not be perfect but current situation need change, to free nz from arrogant corrupt.........

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"Would end Auckland house price inflation, lower our interest rates, and drop our exchange rate."

What would it do to GDP?

The activity caused by house building to fill immigration pressure is the governments economic plan in a nutshell after their fiasco of cheer leading dairy to destruction.That is why we hear " at the end of the day we will do nothing". If we remove the immigration pressure then all of NZ will realise the emperor is indeed bollock naked.

As for the criticism of Reddell what type of plonker business is the RBNZ running if they release decisions early to NZ media and not expect them to have a dabble on the futures? The amount of daily traffic in the NZ$ would hide their movements big time. Forex dealers would drool at the info, I just hope Wheeler is not giving a heads up to our most famous ex fx (and NZ's long term future) gambler.

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Totally agree with Mr Reddell, more and more people are coming out and saying it. Will the government listen? I think not..

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I expect him to be labelled Xenophobic to distract from the economic arguments.
both major parties see high immigration as a great policy and vote gainer so I expect a brexit type backlash at the next election and a 10+ % for NZ first off the back of it.

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My Vote to NZ First provided he announces that will not go with national otherwise will again have to see smirk on jk face

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Xenophobia / Racialism is Godwin's Law 2.0

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Spot on Michael.

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It has been a pleasure reading this post from Reddell based as it is on empirical evidence rather than the feelings and opinions that appear to drive much of current politics and the media. As the statistics clearly show kiwi battlers are worse off (per capita incomes are falling) than before the surges in immigration over the last decade or two. It is time for Government to look dispassionately at the real damage high levels of immigation is doing particularly to those with low skill levels and few assets.

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Totally agree Country Boy and Smalltown, and thank you Michael Reddell, you are a beacon of sanity.
We've a government apparently happy to throw the kiwi working poor (i.e. most of us) under a bus just so long as they can perpetuate this illusion of a healthy economy. Here's hoping J K & Co get what they deserve for their treachery.

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Only solution #jkexit

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While 15% of the total NZ population lives in Australia. About time more Kiwis moved back home to New Zealand.

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Also 40,000-50,000 Kiwis were moving to Australia every single year over the last 15 years.

Australia grew by the total population of New Zealand in just the last 13 years.

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New Zealanders are the second highest Nationality per capita living overseas just behind the Irish.

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.

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Great article.

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The problem seems to lie in our institutions, to be a member of which one must only espouse the politically correct view (other wise known as the institutionalisation of public discourse).
e.g this
http://www.radionz.co.nz/national/programmes/ninetonoon/audio/201810841…

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Chinese-American-New Zealander! Hah, that's good for a laugh. I could only make it 7mins through when he invoked the spectre of Nazism in order to smear European solidarity and godwinned himself. The dark irony is that we as New Zealanders, a tiny, tiny island nation, are supposed to adopt this transcendent, cosmopolitan outgroup preference while the country is flooded from the outside by people who most assuredly bring with them their own ingrained in-group preferences. There is no "global citizen" and no "global consciousness" -- there are simply more and more rootless elites like this man telling the little people what's best for them.

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This Chinesse american nz expert is wrong when he says that only 5% are foreign investor as per data release for if he is in nz would know thàt that data is faulty and is only to suit national government.

Open chalenge to government if they are correct and not lieing than to release correct non resident buyer data without IF and BUT.

Government can ignore this question but soon will be election year and will than have to come out from their ivory tower to beg for votes and will have to face the public to get votes. Interesting time ahead.

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Why are our interest rates so high when compared to the rest of the world?

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Finally someone who makes some sense! Although I would prefer my children and all other expats come back to NZ instead of the 15% of foreign immigrants. Nothing against foreign immigrants, but...

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An excellent article, let's hope people with influence read it and more importantly implement the conclusions.

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Great article.
In addition, effectively the immigration led property boom has shifted wealth from the younger generations to the older. The political repercussions of loading the younger generations up with debt are yet to surface. Introducing some sort of tax based on property values and using this to eliminate student debt would go someway to balancing the ledger.

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Sorry, you leafy suburb nimbys, but before Auckland spreads all over the growing lands of Pukekohe/Bombay, you are going to have to relinquish your large sections and maybe a good proportion of the old houses to increasing density. Allowing more and more people, then concreting over the land your food grows on, much of which is pretty unique would be so stupid that I can't even come up with a word to describe that could be published here.
And as we rely so much for exports on our finite resources I think it is fairly obvious there is a finite number of people we can support and we've probably already surpassed that number.

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Great article Mr Reddell
It's so refreshing to see policy that puts the interests of New Zealanders first.

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Wow, Excellent article, it's great someone is using their brain. Hopefully many more will join this growing trend of thinking about things, and not being scared to change. I hope we do, I sincerely hope we do this very soon.

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Yes, good article. Why are these truths that are so obvious to disenpowered, disfranchised NZ'ers so elusive to our political and financial elite? Why is, what is so obvious, so unspeakable by our media?

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"It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair

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But recent new regional GDP data cast real doubt on whether the strategy is working. The absurdly high house prices in Auckland grab the headlines. But that problem can be fixed. Plenty of fast-growing cities in the United States have very affordable house prices, by making it easy for land to be used for housing.

It is not being fixed, high barriers are placed against use of land for housing around urban Auckland. Which is a problem, because it is creating incentive to sprawl which cultivates income stratification and increased levels of poverty. As a result of council ineptness Auckland is falling behind the rest of the country.

http://www.sciencedirect.com/science/article/pii/S016920461500242X

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John Key needs to stop hurting New Zealand

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Good article - let's hope some politicians read it. However, I'd be curious to know more about what immigration of 15000 per year would look like. We pretty much have to keep the immigration clause that allows families to reunite (seems humane), and certainly we want smart skilled people. Which is the category that needs the most tightening?

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I have a different concept. Selected industries need to be developed like software, education, hospital and nursing care etc. NZ need not be restricted to agro. To have a few people and stick to agro is a typical frog in a well kind of thinking.

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At least the "Think Big" theory had some thought behind it. What we see from the current govt and it's allies is a lack of leadership, foresight and a reactive approach to policy rather than proactive. The masses of immigration continues to support our economy AND provide home owners with a sense of inflated wealth. I actually see little choice for the govt to restrict immigration as it appears it is one thing making our economy look positive compared to the rest of the OECD. Unfortunately, the short-sightedness results in fewer people being able to afford to live in the big cities...I see that teachers have stopped applying for vacancies in AKL and I'm sure where there are other skills shortages in the public sector we will find greater underlying issues within our communities. For someone on a salary of $47k with a student loan, their net pay would be $700 p/w deduct rent upwards of $400p/w your "professional" suddenly becomes a pauper.. oh well..I'm sure a couple of them could rent a garage in the meantime...

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