Throughout the previous New Zealand National Government’s reign, it continually pinned the blame for New Zealand’s woeful housing affordability solely on a lack of supply, completely ignoring the role played by the government’s own mass immigration program:
On Friday, Westpac released a research note, entitled “They came, they saw, they’re leaving”, which forecasts that immigration into New Zealand will fall significant over coming years, which will lower both house prices and rents, as well as boost wages:
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While still elevated, net migration has turned and it’s set to fall sharply over the next few years.
The downturn in net migration has begun even before the new Government has tightened migration settings, and expected policy changes will reinforce recent trends.
Combined, expected changes in government policy and the natural forces already in play will see net migration drop from over 70,000 now to around 10,000 in 2021.
Just as the run up in net migration provided a powerful boost to demand in recent years, the downturn that we have entered will be a significant drag. We expect that lower net migration will see population growth slow from over 2.1% per annum to 0.8% by 2021. That signals a huge reduction in the economy’s rate of potential GDP growth.
Lower net migration will have a significant impact on the economy. It will remove an ‘easy’ source of demand growth that businesses have enjoyed in recent years. It will also reinforce downward pressure on house prices and dampen demand in the construction sector over the coming years.
The fall in migration will also reduce the pool of available workers in some lower skilled occupations, with a related lift in wage pressures. However, potential policy changes are likely to have a smaller impact on the availability of skilled labour…
This strong migration driven population growth has delivered a powerful boost to demand in the economy. We’ve seen the impact of this in areas like retail spending. It has also masked what’s actually been very muted per capita economic growth in recent years…
The migration related increase in demand has also been particularly important in the housing market, with population inflows adding to the demand for both rental and owner-occupied housing…
Prior to the election, Labour proposed tightening visa eligibility for students and low-skilled workers (the details of the proposed policy changes are shown in the table below). It estimated that these changes would reduce net migration by 20,000 to 30,000 people per annum, with most of the change related to a reduction in student numbers. We’ve used this as a baseline for our forecasts…
Lower migration is one of several upcoming policy changes that we expect will result in very weak house price inflation over the coming years. The fall migration will also reduce the upwards pressure on rents.
More affordable housing (both prices and rents) as well as higher wages. What’s not to like?
It’s time for the fake left in Australia (Labor and The Greens) to follow the New Zealand Labour-Greens coalition’s lead.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
