As the Government essentially turns off the tap on immigration, it is putting the blame for the infrastructure and housing crisis in the wrong place, economists say. 

The experiences of migrants are colourful and varied, but one thing they agree on: They relate to being blamed for social and economic issues.  

That’s according to a Human Rights Commission report this year, sharing the racism migrants feel, everywhere, everyday. 

“The housing price has been shooting up because of foreign investment,” respondents from a Korean migrant focus group said. “They might blame the Asians for this happening.”

Most recently the government has been criticised for its immigration reset plans that aims to target high-skilled and net worth migrants over low-skilled temporary migrants who have added pressure to infrastructure and housing and driven down wages in industries such as horticulture.

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Economic and Regional Development Minister Stuart Nash said in his immigration reset “scene-setting” speech in May that the Government wanted to use the closed borders as an opportunity to “take a different path for immigration”.

It meant getting “the right mix of people and skills” to ensure New Zealand met economic objectives, and minimised pressure on its infrastructure – such as housing – and ensured Kiwis had job opportunities, he said.

Over the past 30 years New Zealand’s population grew by about 45 percent, from 3.5 million to 5.1 million, of which net migration contributed about 40 to 45 percent of this growth (about 700,000), and natural increase (births less deaths) the remaining, about 900,000.

In 2010, natural increase accounted for 36,200 people in population growth, while net migration (international migrant arrivals minus departures) accounted for just 16,500, Statistics NZ data shows.

But over the past six years, an increase in net migration has flipped this trend, contributing more to population growth than natural increase. This increase has been the result of a rise in temporary migrants coming into the country, more Kiwis returning and fewer leaving.

Last year, net migration was 79,400, more than three times the natural increase, 25,600. New Zealand citizens coming back to the country drove this trend, with 23,300 returning over the past year.

Net migration fell to 6,600 in the year ended March 2021 – 36,400 arrivals minus 29,800 departures, Stats NZ says. But as international travel restrictions are lifted throughout the world, this month’s Budget Economic and Fiscal Update forecasts that annual net migration will return to 43,000 by the June 2025 quarter.

Through all these changes to migration, and Covid-19 essentially turning off the tap on new migration, house prices have continued to rise.

While the national population grew by 45 percent over the 30 years, data from the Real Estate Institute shows the national median house price increased by 636 percent over that time, from $110,000 to $810,000.

“We have such a broken housing market now because we’ve gone so long without enabling construction. And that’s just a terrible situation to put people into because it encourages the kinds of things we’ve seen recently like trying to count Chinese-sounding names in Labour’s election campaign, and hostility against migrants at auctions.”
– Eric Crampton, NZ Initiative

A study by Motu Economic and Public Policy Research for the Ministry of Business, Innovation and Employment found that while population growth puts pressure on house prices, new migrants did not necessarily drive up house prices more than returning citizens or domestic migration.

Returning Kiwis more likely to buy property

The 2019 report, which used 2013 Census data found that a 10 percent increase in population from migration at the national level was only associated with a 4 to 6.5 percent increase in house prices.

Trinh Le, the research fellow who wrote the paper, says population growth generally drives up house prices due to increased demand, but it’s returning citizens who put more pressure on house prices than new migrants.

“More people cause higher house prices, the composition doesn’t matter. Whether you bring in more new migrants or returning New Zealanders or just through population increase, you’ll have a similar effect on house prices,” Le says.

“What we find is that new migrants have a weaker effect on house prices than returning New Zealanders because they are mature, and are ready to buy a house when they return.”

New migrants, on the other hand, usually rent first and are more likely to live in crowded housing.

“Returning New Zealanders, if anything, add more pressure to house prices,” Le says. 

Le cautions house prices have not simply increased because of returning New Zealanders either. The asset price of houses has also appreciated.

Supply and demand, of course

New Zealand Institute of Economic Research principal economist Peter Wilson says the real issue takes it back to the basics of economics, a mismatch between supply and demand. 

“A big reason for a lack of supply has been councils not zoning enough land for housing. To be fair to councils, Statistics NZ’s projections of population growth have been low,” Wilson says.

“We reached 5 million people 11 years sooner than Stats NZ suggested because of this big increase in migration which was well ahead of historical trends. The swing factor is Kiwis coming back from Australia and the rest of the world.”

“It’s important not to scapegoat migrants as the principle cause of what’s happening in NZ today.”

Foreign investors from Asia were blamed for pushing out first home buyers from the market, leading to the foreign buyer ban that was introduced in October 2018.

But cutting foreign buyers (Australian and Singapore were excluded from the ban due to free trade rules) out of the property market also didn’t stop house prices from increasing.

NZ Initiative chief economist Eric Crampton says the country does not have a too-much-migration problem rather it has a too-little-investment problem. 

The restrictions on building and funding infrastructure has turned housing into a “zero-sum game”, Crampton says.

“We have such a broken housing market now because we’ve gone so long without enabling construction. And that’s just a terrible situation to put people into because it encourages the kinds of things we’ve seen recently like trying to count Chinese-sounding names in Labour’s election campaign, and hostility against migrants at auctions.”

Worsening the skills shortage

The government has signalled it wants to attract high-skilled migrants, as Nash said in his speech. “When our borders fully open again, we can’t afford to simply turn on the tap to the previous immigration settings. That path is a continuation of pressures on our infrastructure, like transport, accommodation, and downward pressure on wages.”

Businesses have been critical of the government’s messaging towards favouring high-skilled workers over low-skilled migrants.

Last week Auckland businessman Nick Reid said reducing the number of low skilled migrants will worsen the skills shortage. Job advertisements across social media, recruitment websites and through recruitment agencies posted for a month would only attract five applicants, whereas two years ago, similar investment into would bring at least 20 applicants, he said.

He supported having an economy not heavily reliant on migrant workers, but there needed to be a transition as well as an effort for consultation from the Government before making a “short-sighted” immigration reset. “The transition needed to be staggered, you can’t just turn the tap off. I consider our guys skilled workers and it cannot be learnt in a six-month period.”

Business NZ chief executive Kirk Hope said the Government is continuing to “perpetuate a myth that migration suppresses wages”.

“The so-called ‘low value’ people that the Government is talking about have helped keep our export industries going and have cared for some of our most vulnerable people over the last year,” Hope said, in response to Nash’s speech.

Economist Eric Crampton says studies overseas show reducing low skilled migrants to work in horticulture or through the RSE scheme did not improve locals wages.
Photo: Unsplash

Crampton says studies overseas show reducing low-skilled migrants to work in horticulture or through the RSE scheme did not improve locals’ wages.

In 1964, the United States ended a 22-year agreement that enabled lower-skilled migrant labour from Mexico to work in the country for seasonal agricultural work. By the early 1960s, about half a million Mexican farm workers migrated to American farms for seasonal agricultural work on contracts lasting from six weeks to six months.

The administration at the time believed arrangement reduced American farm labour wages, but the result was a shift towards crops that were not as labour intensive, more automation, and no increase in farm wages.

Bringing it back to house prices

Focusing on attracting high net worth migrants to New Zealand could have more of an impact on house prices than “low skilled” migrants, according to University of Auckland economics professor Robert MacCulloch.

MacCulloch says New Zealand should look to San Francisco’s housing crisis as a warning.

The US city’s strict zoning restrictions and neighbouring Silicon Valley’s tech boom and influx of highly-skilled and high net worth migrants has led to unaffordable houses and homelessness, he says.

Crampton says councils need new and flexible funding mechanisms to allow for more housing through incentives such as a share in the increased tax revenues (GST, income tax) the central government gets through growth.

“In short, central government gets the revenue boost to income tax and company tax and GST when migration runs high, but local councils are left holding a big infrastructure bill if they consent the housing to address the increase in housing demand,” Crampton says.

“And because there haven’t been adequate financing tools available for councils to deal with that, they’ve protected their balance sheets by setting restrictive plans and being slow in consenting.”

MacCulloch says historically, New Zealand has had periods of quite large outflows – the “brain drain” – and immigration is always going to be important to compensate the losses.

“And being a small country, there will always be many things that locals are not trained or skilled in at all.”

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