pLUGGING THE GAP: TAKE 1

The net migration outflow, for example.
The latest statistics, at time of writing, showed 62,051 people were counted as permanent and long-term arrivals in New Zealand in the year to August 2000, but 72,083 people left to become residents in other countries. The net effect was population loss of 10,030 people.
As recently as the year to August 1996, the country recorded net migration gain of 28,390 people. This was halved to an annual 14,490 net gain in August 1997 and became net annual loss of 2840 people by August 1998.
A similar migration cycle was experienced in the 1970s, ABN AMRO chief economist Rodney Dickens pointed out in an analysis published in September. There was surge of arrivals in the early 1970s, fuelling strong housing market. Real house prices increased 38 percent.But in the second half of the 1970s, arrivals fell sharply while departures surged. Moreover, the huge rise in real house prices in the first half of the decade was largely undone in the second half.
Similarly, there was 38 percent rise in real house prices in the 1990s but house prices have fallen five percent in real terms since migration turned negative two years ago. “There is material risk that net migration will remain negative over the next few years, keeping downward pressure on real house prices,” Dickens warned.
Migrant departures have been increasing for the past five years, so what’s been driving people to leave? Most likely the outflow is natural reaction to the earlier surge in arrivals, Dickens suggested, and in effect we are likely to be “recycling” dissatisfied arrivals.
This year, however, his analysis suggests that Government policy initiatives are the main reason for net migration, particularly the increase in the top personal tax rate from 33 percent to 39 percent. If the Government continues to downplay the extent of the negative reaction to its policies, New Zealand seems set to experience period of prolonged negative net migration and falling real house prices.
Dickens did not expect the Government to backtrack on those policies, but he did have alternative advice. It could introduce much more permissive immigration policy.
The sums are straightforward enough. Just to offset the higher number of migration departures, an additional 15,000 immigrants would be required each year on top of the current 60,000, but for immigration to make positive contribution to population growth, bigger increase would be required. Whether more immigration should be encouraged simply to generate demand for houses and prop up flagging property prices is open to argument.
Much broader considerations were taken into account by BERL economists in feature article accompanying the firm’s September-quarter economic forecasts. Their starting point was that New Zealand has no population growth strategy. It has nothing better than set of official demographic projections, showing New Zealand’s population is expected to grow 20 percent to reach 4.6 million by 2040.
A positive immigration policy could boost that number by encouraging steady inflow of migrants at rate of approximately five per 1000. This would result in the country’s population growing by more than 50 percent to 5.7 million by 2040. The net inflow would be around 15,000-20,000 year, rate achieved in the 1960s and exceeded in the mid-1990s. The key to the strategy would be maintaining this steady inflow over several years.
That’s just one element of the strategy, however, because the geographical spread of the population is just as important as its total size. Not only do we need to get people into the country but we must sort out where settlement and hence development should be encouraged. Without any strategy or policy initiatives, BERL portended, the North Triangle (including Northland, Auckland, Waikato and the Bay of Plenty) will increase substantially while the rest of the country and hence development remains stagnant.
The Government therefore should incorporate population/immigration policy within regional development policy. Furthermore, strategic initiatives at the regional level should explicitly address the future desired size of the regional population. The consequent repercussions for the required levels of regional infrastructure and social services would be the next logical step.
Australia has population strategy and has set population goals. BERL invited its business subscribers to ask in which country they would rather do business or plan to open their next branch or make their next investment.
Australia was by far the biggest destination country, accounting for 38,874 of New Zealand’s permanent departures, in the year to July. Thus big majority of the population boost being planned by the Australians is likely to come from these shores, which is another good reason to sit up and take notice.