Tony Alexander

Economic Commentaries

No room

Thursday May 23rd 2013

On Tuesday we learnt that the annual net migration inflow into New Zealand jumped up to a two year high of 4,776 in April from a net outflow of 4,006 a year ago. This sharp change derives from numbers coming into New Zealand rising 4.1% in the year to April and numbers leaving declining by 6.1%. In fact if we look at just the past three months we see arrivals ahead an even greater 7.3% from a year ago and departures down by 13.6%.

Of the total annual migration flow change of 8,782 people in the past year, 5,705 is accounted for by a change in the net loss to Australia from a record 39,778 to “only” 34,073. Now give thought for a moment to the news items which you have seen in recent weeks regarding talk of the ending of the Aussie mining development boom, problems in retailing, manufacturing and housing, and now forecast Federal government budget deficits for a number of years. Think also of the way New Zealand has comfortably handled the GFC and earthquake impact on government finances with a surplus within reach, the strong demand for our primary products from China, and forecasts of our GDP growth rate approaching 4% on the back of the biggest building project this country has ever seen – worth 20% of GDP.

 

These migration numbers are going to get even higher. In fact if we annualise the last three monthly seasonally adjusted net inflows of 760 then 1,290 then 1,570 we get an annual gain of 14,480. That is now above the average annual gain for the past decade of 11,373.

A key point which I have been making in recent months in my presentations has been that the strong rises which we have seen in house prices since 2009 in Auckland then more recently Christchurch have occurred during a time when net migrant inflows have been weak – averaging just 5,600 from January 2010 to December last year, with a net loss a year ago. Now imagine what will happen I have opined, once the migration cycle turns as it always does, and we go to average.

There will now be extra upward pressure on house prices as not only demand for housing from the population boost occurs, but investors look to buy properties before the migrants do. We have seen this in previous cycles.

How high might the migration numbers go? Over two decades of trying to forecast migration flows tells me that we cannot know when or at what level net annual inflows will peak. But for your guide as to what is possible take a look at the following graph which shows the net annual migration gain starting from 1990. I see peaks of 30,000, 42,000, and 23,000.

What do the data imply? Extra upward pressure on house prices, Extra strength in the pace of activity growth. Extra people around also for employers to hire – though remember folks, these are migrants and repats so be wary of treating them as badly as you do your current staff who are used to the poppy-bashing Kiwi way.

Just for your guide, of the 8,782 turnaround in migration flows in the past year, 5,244 is due to a change in net Kiwi flows with the number of Kiwis returning to New Zealand in the year to April at 24,367 from 22,407 a year ago, and the number leaving at 58,614 from 61,988 a year ago.

 

 

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