Migrants find much to offer here   14 Nov 2013

Migration has played a key role in our nationwide economic development. Net permanent and long-term (PLT) immigration has contributed about a quarter of our resident population growth over the past 20 or so years, with an average net annual permanent and long-term inflow of around 11,000 people since then. Much of our expertise, skills and capital is obtained from migration. As a country with low savings relative to our investment needs, migration helps to fill part of the void. Short-term migration inflows have also played an important role.

New Zealand has much to offer and there has been a trend increase in the number of people settling here, with PLT arrivals increasing roughly 4 per cent each year, and departures up slightly more than 3 per cent per annum. Migration flows are one of the major swing variables in the economy, linked to fluctuations in our nationwide business cycle. It's a little "chicken and egg" to ascertain whether migration flows are the cause or effect of economic cycles in our economy but the two are undoubtedly interlinked.

At present inward migration flows into NZ are picking up from low levels. The past six years saw average net PLT immigration of around 7000 per annum versus 24,000 per annum over 2001-2006. Little wonder that our annual average population growth in NZ over the past five years (0.7 per cent per annum), was less than a half of that over the 2001-2005 period. Annual net PLT immigration is now climbing and reached 15,810 persons in the September year, remaining on track to surpass 20,000 by the end of the year.

What is driving the increased net immigration? Changes to immigration policy, and family preferences are likely to be influential as are economic considerations. When the rest of the world is looking good, Kiwis tend to take off in search of greener pastures overseas. When the overseas environment is perceived to be a little shakier, Kiwis tend to stay put or return from abroad. The present strengthening in net immigration is due to a tapering off in net migration outflows to Australia as labour market prospects improve relative to that in Australia. The NZ economy is in a sweet spot compared to the rest of the world, with our expectation that the economy will outperform most OECD countries for some time to come. Underpinning this is a combination of factors including historically high export prices, strengthening immigration and increasing capital requirements given the Canterbury rebuild and the need to address resource bottlenecks.

There are regional differences. Auckland has been a magnet for internal and external migration. Over the past 20 years about three quarters of the increase in nationwide net PLT immigration has been due to more net inflows into our largest city, with about half of the growth in our nationwide population due to a faster growing Auckland population. More net immigration has accounted for more than a third of Auckland's population growth as opposed to less than one seventh for the rest of the country.

Today the Auckland region has around a third of our nationwide resident population. Back in the mid-1970s it was about a quarter. Demographic projections suggest that by 2040 it will approach 40 per cent.

What are the impacts from migration? Over the longer term, more net immigration is a clear positive for supply side capacity, bringing much-needed skills, capital and expertise, and helping to grease the wheels of the economy. Survey measures of labour skills shortages are at reasonably elevated levels for this stage of the economic cycle. Though this is likely to be the legacy of a period of low (but recovering) investment, the run of low net migration inflows over the past few years are likely to have played a part, with chronic skills shortages still present in pockets of the economy.

However, in the short-term there will undoubtedly be growing pains. More migrants will need to be housed. Increasing population growth is putting pressure on local infrastructure and housing stocks. With migration inflows now strengthening, the onus will be on resources to flow to where population is.

There is already a shortfall of around 30,000 houses in the Auckland region, which looks set to worsen in the absence of concerted stepping up of building activity. An additional 400,000 Auckland houses over the next 30 years wouldn't go amiss, but to accommodate this, more resources will need to flow into investment, with consumer spending the sacrificial lamb. Otherwise the RBNZ will step in to spoil the party.

Mark Smith is Senior Economist with ANZ.

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