Westpac chief economist Dominick Stephens
High levels of net migration have fuelled strong population growth and played a key role in the country’s economic fortunes over recent years.
While the latest Stats NZ figures record a net migration gain of 76,200 for the year ended July 2020, the Covid-19 pandemic has slowed that flood of people to a trickle.
In the four months from April to July 2020 the net migration gain was just 800.
With Covid-19 still running rampant overseas, those big migration inflows are unlikely to pick up any time soon – and commentators say that will have a noticeable impact on economic growth.
Ongoing reports about large numbers of overseas-based Kiwis packing up and returning home have been pointed to as a counterweight to that.
However, in their regular commentary this week, Westpac’s economists say the flood of returning New Zealanders has come to a screeching halt and that will dampen housing demand.
They say the number of New Zealand citizens and residents returning home each month has fallen to just one-third of normal levels.
“At the same time, the closure of our borders has meant that the flow of new foreign citizens arriving in the country has also dried up.”
Although there has also been a reduction in the number of people leaving New Zealand, taken together these developments mean monthly net migration has slowed from around 4,500 to effectively zero since April of this year.
Westpac’s economists say that if New Zealand’s borders remain closed, the slowdown in net migration would result in population growth falling from rates of close to 2% now to around 1% over the next few years.
When it comes to the housing market that will dampen demand, they say. “In broad terms, lower migration means that we’ll need fewer houses than would have otherwise been the case. There will also be less pressure on rents.”
Not everyone agrees with that particular hypothesis though.
CoreLogic senior property economist Kelvin Davidson says both the arrivals and departures of New Zealand citizens have dropped sharply in the past few months.
“However, it’s worth pointing out that prior to Covid, the Kiwi net migration balance had been turning around, as arrivals trended upwards and departures gradually declined from their peak in 2012.
“As we move through the next few months and maybe years of uncertainty, there’s got to be a good chance that departures of New Zealand citizens will stay low and arrivals will be higher than they might otherwise have been.”
That’s unlikely to compensate for the loss of non-citizen migration in terms of overall population growth and property demand, he says.
“But it certainly represents more demand for property than if we were still in the Kiwi ‘brain drain’ years of the 2000s and early 2010s.”
Fewer departures of Kiwis overseas could also be a stronger support for provincial property demand as such departures have, historically, been felt more keenly in the provinces than in the main centres, Davidson adds.
Whatever the level of returning New Zealanders turns out to be, Westpac’s economists point out migration developments do need to be put into context when it comes to housing.
That’s because New Zealand is still wrestling with a significant shortage of housing, they say.
“It’s also important to remember that while slower population growth does point to less pressure on house prices, it’s not the only factor that affects the housing market.
“The Reserve Bank’s easing in monetary policy settings and related falls in mortgage rates have supported a sharp rise in demand from both first home buyers and investors. That’s resulted in house prices pushing higher in recent months in spite of the headwinds buffeting the economy.”
Westpac’s economists expect that house prices will rise by 6.3% over 2020 and have pencilled in another 8% rise over 2021.
Comment: Don’t discount migration as a demand driver