Net Migration to Rise in NZ: Govt Challenges

The latest data on migration in New Zealand suggests that the country could be on track to reach another record high in net migration, surpassing the previous year's figure of nearly 119,000 people. While the influx of migrants has helped fill labour market vacancies and skills shortages, there is growing concern over the record number of New Zealanders leaving the country in search of better living conditions and higher incomes.

In the last six months alone, an average of 6,500 New Zealand citizens have permanently left the country each month, exceeding the previous record set in 2011/12. This is largely driven by the rising cost of living and the allure of more affordable housing and higher incomes across the Tasman Sea in Australia.

Previously, a significant number of new arrivals settled in Auckland, but recent figures show that the region now accounts for 46% of migrant departures, almost on par with its share of arrivals. This suggests that more people are leaving Auckland in search of opportunities elsewhere. However, while the pattern of international inflows and outflows is more balanced than before, there are still regional differences at play. In the South Island, 65% of cities and districts recorded a larger share of departures than arrivals in 2019, compared to just 18% in the North Island. This indicates that it is still challenging to attract migrants to most parts of the South Island.

The dominance of Auckland in migrants' plans is also evident in the housing market. Rental inflation in Auckland reached a post-2006 high in September, outpacing nationwide growth. House prices in Auckland have also rebounded, surpassing the national increase. With rapid population growth adding to housing stress and affordability issues in the city, these problems could worsen in the coming years.

The influx of migrants has also contributed to demand pressures across the broader economy, resulting in higher rents, construction costs, and house prices. The Reserve Bank has expressed concerns about these issues, and while further interest rate hikes seem unlikely, they are not entirely ruled out. The possibility of higher interest rates raises concerns for the provinces, especially as falling commodity prices for dairy, meat, and forestry exports have already dampened growth prospects. The stronger New Zealand dollar, prompted in part by the Reserve Bank's hawkish tone, exacerbates the impact of falling export prices on profitability.

Overall, provincial areas, particularly in the South Island, are likely to be most affected by the current migration imbalance. These areas struggle to attract foreign workers, continue to lose New Zealanders to Australia, and may face tighter monetary conditions as a result of demand pressures in Auckland. The government's failure to effectively manage migration and population growth, as well as improve housing supply and infrastructure, exacerbates these challenges faced by regional areas. The incoming Prime Minister, Christopher Luxon, will have to address these issues along with the existing challenges.