Air NZ All Black A320 landing in Auckland taken from the terminal departure lounge
Record immigration doesn’t help the provinces
Tue 12 Dec 2023 by Gareth Kiernan in RegionalMigration

This opinion piece was first published on Stuff on 12 December 2023.

Data for October could show migration edging up to another record high, surpassing September’s result of nearly 119,000 people net coming into the country over the last year. But with this flood of arrivals adding to demand pressures across the economy, provincial areas could bear the brunt of the policy response.

The number of people leaving is concerning

The influx of migrants since the borders reopened following Covid has attracted plenty of attention. New arrivals have played a key role in filling longstanding vacancies and skills shortages in the labour market that had developed between 2020 and 2022. But at the same time, the loss of a record number of Kiwis heading overseas has garnered fewer column-inches. The latter reflects the cost-of-living pressures faced by many New Zealanders, and the lure of higher incomes and more affordable housing across the Tasman.

The number of NZ citizens leaving permanently has averaged 6,500 per month over the last six months. This result surpasses the previous highest six-month total in 2011/12, when the Christchurch earthquake, Australia’s mining boom, and New Zealand’s lacklustre economic performance combined to send departure numbers soaring.

Fifteen years ago, migration data told us that a disproportionate number of new arrivals settle in Auckland, at least in the first instance, while departures tended to be spread more evenly across the country. However, figures in the June 2019 year (which is the last “normal” year we have data for) showed that people leaving Auckland contributed 46% of migrant departures, just below its 47% share of arrivals, and well above its 34% share of the overall population. The only other areas that contributed a higher share of departures than their share of population were the main urban centres of Hamilton, Wellington, Christchurch, and the holiday hotspots of Kaikōura, Mackenzie, and Queenstown-Lakes.

Because the regional pattern of international inflows and outflows is more balanced than it was 15 years ago, the loss of Kiwis overseas is perhaps less debilitating for the provinces than in the past. But there are still regional differences at play. The migration data shows that 65% of cities and districts in the South Island recorded a bigger share of departures than arrivals in 2019. By comparison, just 18% of North Island areas suffered the same fate. In other words, it’s still tough convincing immigrants to head to most parts of the South Island.

Everyone pays for Auckland’s issues

Auckland’s dominance in immigrants’ plans is showing through in the housing market. Rental inflation in Auckland hit a post-2006 high of 9.4%pa in September, well ahead of nationwide growth of 7.2%pa. House prices in Auckland have also rebounded 4.9% over the last six months as immigration has soared, outpacing the nationwide increase of 3.1%. Rapid population growth is once again adding to housing stress and affordability issues in Auckland. Even with the city’s backlog of consented dwellings from the last couple of years waiting to be built, these housing stresses could get worse during 2024.

Demand pressures across the broader economy, associated with the migrant influx, have also attracted the Reserve Bank’s attention at its most recent Monetary Policy Review. The Bank expressed concern about higher rents, construction costs, house prices, and associated household spending. At this stage, a further increase in the official cash rate next year still seems unlikely, but the Bank’s tone suggests it’s more possible than we might have thought six weeks ago.

The resurrected possibility of another interest rate rise must be causing concerns in the provinces. Falling commodity prices for dairy, meat, and forestry exports since early 2022 are weighing on growth prospects for 2024 and into 2025. Up until October, those export price falls have been cushioned by the weaker New Zealand dollar, but the Reserve Bank’s hawkish tone has contributed to the dollar’s recent rise to its highest level in four months. Much more of a lift could see the exchange rate finish 2023 higher than at any other time during the year. The hit to export revenue from the higher dollar, and its negative implications for profitability, would be compounded if interest rates rose further and added to farmers’ costs.

In essence, provincial areas, across the South Island in particular, are likely to be the most disadvantaged from the current migration imbalance: struggling to attract foreign workers, still losing Kiwis to Australia, and yet potentially punished for Auckland’s excess demand by tighter monetary conditions. The bluntness of the official cash rate to control inflation and manage demand across the economy is a longstanding issue, although no one has come up with a better alternative. But the failure of successive governments to manage migration and population growth so that it doesn’t exacerbate the economic cycle is a more fundamental problem, as is their ineffectiveness in improving the supply of new homes and associated infrastructure that is needed to house a growing population. New PM Luxon has another issue requiring a fix to add to an already large pile.

Related Articles