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Is NZ still known as a desirable destination for international migration? Stats say yes, despite overblown concerns.
Concerns that our reputation as an attractive destination for international migrants had been severely damaged in the last few years appear to have been exaggerated when you look at the actual numbers.
In fact, New Zealand is currently experiencing a spike in population growth that surpasses global trends of population growth, thanks to a record high migration. The combination of new government policies and the sudden satisfaction of those waiting due to border closures has resulted in unprecedented net migration gains over the past five months.
While this is positive news for all the New Zealand businesses who are desperately in need of workers, it raises concerns about the impact this influx of people will have on the economy and our ability to tackle issues such as housing, infrastructure, and inflation in the long term. Have we unknowingly returned to the same patterns of the past two decades, enjoying the short-term benefits of high immigration without considering the underlying structural challenges?
According to fresh estimates from Stats NZ, New Zealand had a net migration gain of 65,400 people in the year ending March 2023. Just in March, 21,400 migrants arrived - the highest monthly estimate ever recorded - with a net gain of 12,100 people to the NZ population. Putting this net migration number into scale by comparing these figures to the 91,000 strong peak in the year ending March 2020 when many Kiwis returned home due to the global impact of Covid-19.
A second and more relevant comparison can be made to the annual peak of nearly 70,000 in 2017 during what was known as the "rock-star economy" years under Prime Minister John Key. This comparison is closer in both numbers achieved and general world circumstances – no pandemic in 2017.
Regardless of where the specific numbers sit - currently or within the historical trend contexts - the annual net migration rate is on track to surpass 100,000 people per year - surpassing all previous records.
Professor Paul Spoonley, a sociologist at Massey University, highlights the fact that these numbers challenge – or even entirely disprove - the notion that New Zealand is no longer competitive internationally. He points to the fact that in proportion to our population we are performing as well as, if not better than, countries like Australia and Canada.
The panic and anxiety in the local labour market regarding the loss of workers, skills shortages, and the post-pandemic surge in supply contributed to the high demand for migrants. Spoonley also speculates that many people were probably waiting to observe how the situation evolved but had always intended to migrate to New Zealand.
However, there are differing opinions on whether these elevated numbers will persist and reach 100,000 with the Treasury, the Reserve Bank, and Spoonley himself remaining sceptical.
“We’ve seen 150,000 arrivals [in a year] but we’ve never seen a net gain of 100,000.”
In its Budget forecasts, Treasury predicts that net migration will peak at 66,000 by September 2023 before gradually declining to an average of 40,000 per year from 2024 onwards. The Reserve Bank expressed similar views in its Monetary Policy Statement, acknowledging the higher immigration trend while anticipating a reduction in the spike, and Treasury stated that “compared to the Half-Year Update, net migration returns much quicker and is around 80,000 cumulatively higher over the forecast period.”
Although we have witnessed 150,000 arrivals in a year, a net gain of 100,000 has never been seen before. Regardless of future trends, the current immigration figures represent a historic shift that has significantly impacted the immediate economic outlook. Treasury now predicts that New Zealand will avoid a recession this year.
Economists like Michael Gordon from Westpac, however, caution the government and the public against underestimating the number of arrivals. Westpac stands by its forecast, in contrast to the Reserve Bank, highlighting the potential inflationary impact and projecting a higher peak for the official cash rate. Gordon believes that in order for the forecast to change, something significant must occur, as he considers the current outlook to be fairly conservative.
While six months ago the future for New Zealand’s economy and the effect that boarder closures would have on migration, the skills shortages, and supply issues was murky – but Gordon believes it’s become clear.
"Now we have the answer, at least in terms of what has happened so far. There is a strong desire among people to come to our country."
With the focus on controlling inflation and the associated political discussions surrounding government spending and monetary policy settings by the Reserve Bank, the sudden surge in immigration has introduced another complex variable into the equation.
Until earlier this year, there was no shortage of business leaders and politicians attributing the labour shortage and government migration policies as significant drivers of inflation. The substantial increase in net migration should help address this concern.
However, typically, the Reserve Bank of New Zealand (RBNZ) would view rising net migration as inflationary as more people in the country theoretically causes an increased demand on the economy.
Therefore, the question everyone is asking: does immigration solve inflation by expanding the labour supply, or does it create more inflation?
“It’s actually quite ambiguous which way the net effect goes,” says Gordon. “It will add to labour supply, more so in some areas and add to demand, more so in others. This is a giant natural experiment and economists in years to come will look at all this for evidence of what it does to wage pressure.”
In some industries, such as aged care, new migrants would augment the workforce without adding to demand because most migrants are under 40 years old. On the other hand, when it comes to housing, all people migrating here require accommodation and whether through renting or buying - this adds to the demand for housing.
Unfortunately, New Zealand’s housing response has never been robust enough. Gordon acknowledges that migrants are often unfairly blamed for putting pressure on housing, but the reality is that we struggle to build homes for both migrants and locals due to deep-rooted structural issues within the construction industry. We tend to be reactive rather than proactive in addressing housing needs, and this pattern is repeating itself.
As we experience this significant population surge, some building companies are already projecting a decline of 30, 40, or even 50 percent in the following year.
Over the past few decades, New Zealand's net migration rate has gone through cycles of booms and busts, leaving us severely underinvested in the necessary infrastructure and housing. Professor Paul Spoonley emphasizes the importance of considering the needs of diverse ethnic groups within a bicultural framework for health provision, highlighting the ongoing challenge of addressing these issues effectively.
Spoonley explains that net migration accounts for two-thirds of our population growth rate, making it crucial for understanding population changes since 1990.
He points out that we have experienced four significant spikes in migration. The first spike occurred in the early 1990s when the country opened up to Asia, resulting in a modest net gain of 29,000 people in 1996.
“Then we had NZ First in Government in 1996 and the numbers just drop away,” Spoonley says.
In 2000, migration settings were redefined by Lianne Dalziel, leading to another spike until the Global Financial Crisis (GFC) hit. The peak net migration during this time was 59,000 in 2003.
The third spike during the John Key years continued after the Labour Government was elected in 2017. It reached its peak in 2020, recording the highest net inflow as New Zealanders returned home during the pandemic.
"Now we're experiencing the fourth spike," Spoonley remarks.
The cyclical nature of these spikes is generally tied to economic conditions. However, this current spike is different. Gordon notes that typically, people move to seize opportunities, resulting in larger inflows when the New Zealand economy is performing well. However, considering the possibility of a recession this year, it seems that population growth is serving as a mask for some of the economic challenges we face.
“This is not forever. I think it will eventually run its course. But there’s a lot of uncertainty about how far it has to run,” Gordon states.
Spoonley emphasizes that “it is important to step back and look at what is happening internationally.”
Despite the surge of migrants coming to New Zealand, concerns about rising international competition for workers are not baseless. He shares insights from a meeting in Washington, stating that countries we typically compare ourselves to are beginning to revise their immigration policies. He predicts that more countries will adopt a points-based system due to the significant labour shortage prevalent in high-income nations.
“It is going to be competitive. And the reason for that is the huge labour shortage we’re seeing in all high-income countries.”
In the United States, it is estimated that a combination of COVID-19-related deaths, illnesses, retirements, resignations, and the immigration policies during the Trump era have created a shortage of 10 million workers. Spoonley mentions that the Biden administration is actively seeking ways to increase skilled migration.
Even in the United Kingdom, where factions of anti-immigration opinions were loud during Brexit, the government is now attempting to boost skilled migration. Despite plans to add 50,000 workers to the National Health Service (NHS) workforce, there is still a shortage of 40,000 positions.
Spoonley notes that countries like the United Kingdom, the United States, and Canada are recruiting from sub-Saharan Africa, Kenya, and Nigeria, while New Zealand's source countries have reverted to pre-COVID trends. The top three sources of migrants for New Zealand are China, India, and the Philippines. However, Spoonley also emphasizes that this dynamic is mirrored throughout the developed world.
“It’s that very large baby boom generation that is going to exit the workforce. Then we’ve got very low fertility ... so the numbers entering the workforce out of education are going to start tracking down. That’s why the Ministry of Education is anticipating 30,000 fewer students in the 2060s,” he says.
Gordon expressed his view that the current setup is not ideal, and pointed out that there are no strict limits on the number of people entering the country; instead, the limitations primarily apply to residency. This lack of control over inflows poses challenges. Gordon suggests the need for better alignment in how we market ourselves to migrants and clarify the pathway to residency.
Spoonley highlights the failure to integrate migration into broader social planning beyond just business requirements. He believes that migration should be considered in conjunction with other demographic factors and regional drivers.
It is essential to address the circumstances in regional economies and explore opportunities in different industry sectors.
He also says that he still believes that there is still merit in the immigration reset put forward by the Productivity Commission - which was unfortunately implemented by the government at a time when borders were closing worldwide due to the pandemic.
“That hole that occurred during Covid is now over and all the issues that the Productivity Commission considered as important considerations are back on the agenda, because [the new surge] is going to exacerbate the deficit.”
Comparing New Zealand's annual population growth of 2.1 percent to the OECD average of 0.6 percent, Spoonley points out that we are three times higher than the average.
This prompts the question of whether Spoonley has a specific target in mind that would benefit New Zealand more effectively.
He suggests following Australia's example and aiming for a 1 percent growth rate, which would translate to a net gain of around 45,000 to 50,000 people, an appropriate figure given the current circumstances.
“What we tend to do is reduce immigration to the needs of our labour market without considering broader population issues and regional issues and the ability to accommodate population growth and what’s needed.”