Housing/immigration to dominate NZ election year

By Leith van Onselen

It’s official: New Zealand will head to the polls on 23 September 2017. From the New Zealand Herald:

Announcing the date at a press conference in the Beehive this afternoon, [Prime Minister Bill] English said the economy “will always be the central issue” in an election.

If the election could be summed up in a word, it would be “growth”, he said…

He downplayed the prospect of immigration taking centre-stage in the election campaign, despite new data showing another record net gain in migrants in the past year. Forecasted slowdowns in migrants would mean immigration would not be a major issue, he said.

Labour leader Andrew Little, on the other hand, said the election would be fought on housing affordability, access to healthcare and quality education, safer communities and a stronger economy.

“Only by changing the Government can we do that,” he said.

“We’re well prepared, our teams are in place, our plans are well advanced and we’ll be working hard to convince New Zealanders we can help give them a fair shot at the Kiwi Dream.”

A poll held in December by Roy Morgan Research suggested voter angst over housing and immigration is starting to boil over, with 27% of respondents citing housing affordability (17%) and homelessness/housing shortages (10%) as the key problem facing New Zealand – well ahead of the other issues.

The concerns are loudest in New Zealand’s biggest and most expensive city – Auckland – where housing ranked as the key concern among 37% of residents, namely housing affordability (25%) and homelessness/housing shortages (12%).

Since Roy Morgan’s survey was released, the housing picture has gotten even worse in New Zealand. The latest Demographia International Housing Affordability Survey, released last week, showed New Zealand’s Median Multiple (median house price divided by gross annual median household income) jumping from 5.2 to 5.9, pushing New Zealand to second spot out of the eight countries surveyed (see next chart).

ScreenHunter_17051 Jan. 22 17.01

New Zealand’s biggest and most expensive city, Auckland, also climbed to fourth spot on the rankings of most unaffordable housing markets, up from fifth position in 2016:

ScreenHunter_17050 Jan. 22 17.00

Demographia’s finding that New Zealand’s housing market has become increasing unaffordable was backed-up by newly released RBNZ data, which showed the value of New Zealand’s housing stock hitting a new all-time high relative to the size of the nation’s economy, surging to an unprecedented 391% of GDP as at September 2016, up from 351% the year prior:

ScreenHunter_17060 Jan. 23 07.08

Underpinning much of the housing woes is New Zealand’s break-neck immigration, most of which is flowing into Auckland and placing acute pressures on both housing and infrastructure.

As shown in the next chart, net permanent and long-term migration into New Zealand hit all all-time high 70,558 in the year to December 2016, representing roughly 1.5% of New Zealand’s annual population growth:

ScreenHunter_17166 Jan. 31 09.39

Over the past 18 months, the New Zealand Treasury, the Reserve Bank of New Zealand and various commentators voiced concerns about the efficacy of this immigration program, and questioned whether it is raising the living standards of the incumbent population.

Just last month, Interest.co.nz’s Greg Ninness penned a stunning critique, arguing that immigration is behind the house price surge in Auckland, and that this has been caused by deliberate policies by the National Government:

Migration remains by far the main driver of demand for housing in Auckland…

Statistics NZ estimates that Auckland’s population increased by 44,300 people in the year to June, with 69.5% of the increase (30,800 people) coming from migration…

ScreenHunter_16739 Dec. 15 08.24

As the table shows, the biggest surge in migration occurred from 2013/14 onwards as the Government encouraged immigration on a number of fronts to try and spur economic growth.

ScreenHunter_16740 Dec. 15 08.25

That included creating what became known as a “pathway to residency” for overseas students studying here, which resulted in a huge influx of overseas students applying for residency at the end of their studies, a scheme that has since run into numerous problems…

Such rapid population growth has had an obvious effect on Auckland’s housing market… although the problem is not new, it has been exacerbated over the last three years by the rapid increase in migration…

These problems should all have been foreseen when the Government left the immigration taps open three years ago.

If it didn’t, that suggests incompetence.

And if they did see the problems and proceeded anyway, it reeks of recklessness.

So take your pick. Reckless or incompetent?

These concerns have not been lost on New Zealand’s opposition parties, with Labour, The Greens, New Zealand First, and Gareth Morgan’s new Opportunities Party all calling for restraints on immigration.

Prime Minister Bill English has a good understanding of the impediments to affordable housing in New Zealand. He did, after all, pen the introduction to the 9th Annual Demographia International Housing Affordability Survey, whereby he noted among other things:

“Housing affordability is complex in the detail – governments intervene in many ways – but is conceptually simple. It costs too much and takes too long to build a house in New Zealand. Land has been made artificially scarce by regulation that locks up land for development. This regulation has made land supply unresponsive to demand. When demand shocks occur, as they did in the mid-2000s in New Zealand and around the world, much of that shock translates to higher prices rather than more houses. It simply takes too long to make new land available for development”.

But the fact that housing affordability has gotten worse over the past decade under his Government’s watch means that Mr English risks pain at the ballot box in the upcoming general election.

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Unconventional Economist
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  1. This is bad bad news. If this results in immigration curbs and sensible housing reform in NZ and then FALLING PRICES, it will be a clear signal for Australia to never embark upon that path.

    Just like we had enough time to “learn lessons” from the US and Irish housing crash to know how to avoid ours, NZ might be the guinea pig this time around. Dammit.

  2. Any updates from Vancouver? Wondering if there has been a cooling there since the bigger tax on foreign nationals buying property came into effect.

  3. Great article Leith. With your excellent housing shortfall chart it could be helpful to explain to the readers that it is based on Auckland’s average housing occupancy rate -which from memory is 3. So in 2016 Auckland’s population rose by about 45,000, so with an average occupancy rate of 3 this indicates a demand for 15,000 new homes, but Auckland built only about 10,000 houses in 2016, hence a shortfall of roughly 5,000 homes.

    Leith you and MacroBusiness might be interested in this article I wrote about Tokyo’s housing affordability.