ANZ economists see immigration likely reducing to 40,000 a year by 2020 but say the migration outlook 'provides risks on both sides at the moment'

ANZ economists are picking that net immigration will reduce from the current 68,000 a year to about 40,000 per year within the next two years, but they say the outlook's uncertain "for a few reasons".

In their latest Market Focus publication the ANZ economists have had a detailed crunch on the migration situation, including looking at why the recent surge in immigration has not caused the kinds of spikes in inflation previous such surges have.

The economists say if the net migration inflow does slow to about 40,000 a year this would be expected to contribute to moderating GDP growth, labour force growth, and house price inflation.

However, there are those uncertainties, including an "unclear" policy outlook.

While the Labour Party had prior to last year's election indicated that it intended to reduce migration inflows by 20,000-30,000 per year it has not yet since forming a Government yet indicated any plans to implement a stricter immigration target.

"This perhaps reflects the fact that immigration remains important to meet labour shortages across a range of industries and if migration were to be reduced significantly, many businesses would find the operating environment more difficult," the economists said.

The risk of changes to migration policy may have been a factor contributing to the decline in business sentiment since the election, they believe.

The economists say that historically, strong immigration has tended to put upward pressure on house prices, with more people meaning greater demand for housing.

"If supply responded perfectly and immediately, there would be no pressure on house prices in response. But housing supply is constrained by land availability, regulation and construction sector capacity."

On why housing supply has struggled to keep pace with population growth: "It comes down to planning restrictions, land availability, land banking incentives and restrictions, the scale and structure of the building industry, funding availability, labour availability and mobility, and local or central government-influenced costs and bottlenecks, such as around infrastructure provision."

But the economists said it is not as if the home-building sector has been sitting on its hands, with the data showing that as a supply squeeze forces prices up, so consent numbers for new houses respond.

"The resulting net supply response has a very strong correlation with real house price inflation, showing that house prices are doing their job – encouraging more supply, albeit not fast enough to quite keep up with population growth."

The economists note, however, that since late 2016 the housing market has slowed even though net migration has held up and interest rates have remained highly stimulatory.

They point to a number of factors:

  • RBNZ loan-to-value ratio restrictions have taken the heat out of the market, although that is not a new thing.
  • The “funding gap” that opened up for banks, combined with new regulations regarding foreign funding, meant reduced credit availability has likely been a dampening influence over the past year or so.
  • Affordability constraints are biting, particularly in Auckland. House price levels matter.
  • Proposed government policies are intended to reduce the attractiveness of housing as an investment, including banning non-residents from buying existing property, extension of the bright-line capital gains test, and possible other tax changes.

"These headwinds explain the correlation breakdown. It is not necessary to conclude that the impact of migration on the housing market has reduced – just that it is has been outweighed. It is fair to say that house price inflation would have been lower in recent years if migration inflows had not been as strong."

The economists say a key driver of this migration cycle has been relative weakness in the Australian labour market, compared with New Zealand. When the New Zealand unemployment rate is lower than in Australia, trans-Tasman net migration flows make up a greater proportion of total net migration. And this means a quicker boost to labour supply than otherwise.

"Kiwis not leaving for Australia are already embedded in the local labour market, while Australians come from much the same culture and language and are often arriving for a specific job. This means there is less of a timing mismatch between contributions to aggregate demand and supply. This leads to the finding that when the New Zealand labour market is outperforming its Aussie counterpart, a given net migration flow tends to be less inflationary."

The economists say the accessibility of overseas labour means the available pool of workers in New Zealand is effectively larger than it appears.

"Overseas applicants for jobs are not counted in New Zealand’s labour force, but they are part of the pool of workers employees are competing with, even if they do not eventually move to New Zealand.

"If firms believe they will be able to hire from offshore pretty easily – either because of Government policy or the relative performance of foreign labour markets – then they will be less inclined to offer higher wages to lure local applicants.

"Effectively, the pool of potential workers has been even larger than labour force data suggest. And this has likely dampened wage growth. So while employment growth has certainly been strong in recent years, labour supply, measured and effective, has broadly kept pace. This is likely a factor contributing to unusually subdued wage inflation, which has in turn contributed to weakness in CPI inflation."

The economists say, therefore, that when it comes to explaining why strong migration has not been more inflationary this cycle, they see two main explanations: fairly prompt growth in measured labour supply due to the mix of migrants and the unmeasured pool of potential offshore workers, and more recently, deliberately imposed headwinds for the housing market.

"Migration inflows have been stronger than expected in the past few months. But we are not expecting house price inflation to take off again. Namely, we expect that the factors weighing on house price inflation will persist – the Government seems set on its tax changes, and the Reserve Bank will ease LVR restrictions only very cautiously. However, the outlook for migration is a key risk to that forecast, in both directions."

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27 Comments

Think Labour's own target was 20,000 to 30,000 and the next election is November, 2020 so they'll want it done by then. Is ANZ suggesting that the government will fail to meet their own targets?

yep....I still waiting for Wisnton to be asked about this? Rather bizarre msm goes all dog on anything the govt does, but no challenge about issue this eh?

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The MSM are pro real estate thus pro mass immigration. Our country being wrecked is a minor side effect.

Just like you BL

Just like me what?

Two things. Firstly, the proposal was expected to reduce net migration by 20-30,000, not to 20-30,000. On this measure, down to 40,000 is about right if not more than originally thought. Secondly, there was never a numbers target as such, just some proposals and a calculation on what kind of impact this would have.

"In total, these changes are estimated to reduce net migration by 20,000-30,000."

https://www.labour.org.nz/immigration

We are still waiting for the government to actually implement the proposed changes.

I wrote to the minister over a week ago. I don't think they have worked out what they want to do

They didn't expect to get in, so were free to promise whatever they felt like, as they wouldn't have to deliver. That is why they need so many committees to figure out what to, er, do, exactly. Should be interesting. Presumably their pathetic fawning toadies in the media will do their best to distract attention from the broken promises.

Without immigrants, who will be buying our top end houses in DGZ?
Which suburb will be the first to break the $3m barrier?

Herne Bay, which saw 77 sales last year, has the country’s largest average price tag, at just under $2.5 million. Not far behind is Remuera, with an average value of $2.3 million – a big number matched by equally impressive sales volumes: 419 sales over the past year.
https://www.oneroof.co.nz/news/which-suburb-will-be-the-first-to-break-t...

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I’m sure without immigrants nobody will buy them and then the vendors will cry into a pillow made of money.

Just another failure from this Coalition of Losers!
They are now saying that overstayers that can build will now be allowed,to Kiwi Builds over the next 9.5 years!
They are absolutely clueless!

Wow if these figures become a reality look to house values dropping even more in Auckland and Christchurch. Landlords who have not done so in those two locations would be wise to reduce their portfolio in some way. Those who did it last year were smart.

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40,000 is still around 3 times the long term migration average used in previous stats nz population forecasts. As such NZ is on track to pass 5 million population by early 2020 and then 6 million in the mid 2030’s.
I hope Clarke Gayford has enjoyed his fishing experiences etc because his child is entering a NZ where what we have taken for granted and considered our birthright is being lost.

5 million is the size of a decent city

Yvil...the key word there is 'decent'...we are struggling to have a decent city with less than 2 million.
Great cities grow and evolve organically over time.

Yes. The 20th largest city in China has a population of 7.4m. Shanghai has a population of 34m and has grown at an average rate of 37% per annum since 2000 so rapid growth can be done.
There needs to be greater innovation in building solutions. The likes of Fletchers have operated a near monopoly and had no great incentive to bring in new techniques.

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Shanghai, with the thick cloud of smoke perpetually hovering over its skyline and killing hundreds of thousands every year, is not an example for a world class city to live by.

34 million wrongs does not make one environmental right

Depends what you want. Most of the metrics that put Auckland consistently in top 10 liveable cities would be severely diminished if it were 5 million population. While I appreciate the improved food options and vibrancy Akld has to offer I'd sacrifice them for the less congested and more relaxed pace of a few decades back when Akld population was <1 million.

add in the reportedly 150,000 here on student visas and we already have 5 Million

""ANZ economists see immigration likely reducing to 40,000 a year by 2020"" - look at figure 7; first the Australia figures and then the non-Australia. Two wiggley lines that prove nobody can predict net migration.
Govt controls how many and who comes in but they can never control Kiwis leaving or returning. So the entire article is a waste of time.

40,000 migrants are still quite a lot. If the figure was 70,000 and the least useful 30,000 were shorn off I doubt it would make much difference to property values.
Consider that it was not too many years ago that we had negative migration.

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The flow of credit together with affordability and confidence will dictate house values going forward. By world standards NZ houses are way overvalued. Immigrants have discovered this alarming fact too. There's just larger pockets of overcrowding and homelessness to look forward to.

I think you are right.. Well off immigrants (the ones we may find useful) may be avoiding us - cheaper to go elsewhere. So we are left with pseudo-students, over-crowded rentals and corrupt businesses employing desperate low paid immigrants - a recipe for exploitation.

The IMF certainly think so. IMF finds Auckland second worst city for house price inflation:

https://rogerwitherspoon.wordpress.com/2018/04/22/imf-finds-auckland-sec...

really, I expect better on this site! House prices are determined by price of credit and criteria of borrowing, both of which have tightened and WILL tighten more in next 2 years, especially in Australia and USA. It is this prospect that depresses business confidence, NOT government policy. Ask a few medium sized businesses how long it is taking to get paid and you will see what is going on.

Isn't the problem Auckland? The same price of credit and borrowing criteria apply to the whole country and there are wonderful below cost of replacement homes for sale in smaller towns - for example Oamaru. It has to be population related and while all the population for various reasons floods towards Auckland that is where the prices will be high.