Dwindling immigration eases housing pressure

By ELLEN READ

Immigration continued to slow last month, adding further backing to expectations that the economy will soften.

Seasonally adjusted data shows a net migration inflow of 1000 in April, down from 1190 in March. Over the year to April 30, there was a net migration gain of 25,700 - 39 per cent lower than the net inflow of 42,000 people in the previous year.

"The slowdown in net migration is consistent with out view that housing market turnover will continue to soften, with a corresponding slowdown in residential construction activity following with a lag," said Deutsche Bank chief economist Ulf Schoefisch.

The 25,700 net gain resulted from 86,200 permanent arrivals (down 12,000) and 60,500 permanent departures (up 4400).

New Zealand citizen arrivals and departures both rose 600 from the previous April year, while non-New Zealand arrivals were down 12,600 and non-New Zealand departures were up 3800.

There was a net inflow of 9900 from the United States (up from 7700), a net inflow of 6700 from China (down from 15,400), and a net outflow of 11,400 to Australia.

If net migration is not going to drive the local economy, pressure is reduced on the Reserve Bank to raise interest rates.

But economists are still picking a 25 basis point increase to 5.75 per cent next month.

"As the New Zealand dollar has, for now, stabilised well off its highs and domestic demand is supported by a fully-employed economy, we favour a 70 per cent chance of a 25 basis point cash rate increase on June 10," said Citigroup economist Annette Beacher.

If net migration averaged around a 1000 person inflow, then this was also the likely peak in the cash rate in the current cycle, she said.

In March the central bank lowered its estimates for net immigration - it now sees the annual increase flattening off to a little more than 10,000 over 2005 and 2006.

As net migration eases, demand for housing will come more into line with supply, which will alleviate the pressure on prices, ASB economist Kate Skinner said.

"There will also be less need for new houses so residential construction will, in the first instance, stop increasing - and hence not add to GDP - and then eventually weaken."

Last week the OECD forecast a soft landing for the economy due to a easing in net migration inflows, a levelling-off of house prices and the impact of the New Zealand dollar's rise spreading from exports to the wider economy.