Fears that New Zealand’s reputation as a destination for international migrants had been “trashed” appear to have been greatly exaggerated.
Instead, this country is currently outpacing the rest of the world in population growth as net migration surges to record levels.
Over the past five months, net migration gains have been running at rates we’ve never seen before as a combination of new Government settings and pent-up demand from border closures is unleashed.
That’s good news for businesses crying out for workers, but what does it mean for the economy as we try to get on top of inflation?
And what about the longer-term issues of keeping up with housing and infrastructure?
Have we unwittingly fallen back into the same bad habits of the past two decades - enjoying the economic sugar hit from high immigration, without any forethought for the longer-term structural issues?
New Zealand had a net migration gain of 65,400 people for the March 2023 year, according to estimates released by Stats NZ.
In the month of March alone, 21,400 migrants arrived - the biggest monthly arrivals estimate ever - and the net gain was 12,100.
That compares to a peak of 91,000 net migrants in the March 2020 year, as Kiwis flocked home en masse when Covid struck around the world.
A more relevant comparison is with the annual peak of almost 70,000 in 2017 - during John Key’s so-called “rock-star economy” years.
Either way, the annual net migration rate is now on track to top 100,000 people a year - blowing away all previous records.
“The numbers give a lie to the fact that people were a bit down in the mouth and thought we weren’t going to be competitive internationally,” says Massey University sociologist Professor Paul Spoonley.
Spoonley has just returned from visiting the World Bank in Washington DC, where he talked immigration policy with Biden administration officials. He also attended the Canadian migration conference in Toronto.
“We are right at the top,” he says. “If you look at the figures for Australia or Canada - proportionate to the population we are doing as well if not better.
“There was a degree of panic in the New Zealand labour market about the loss of workers, so the demand was high. I also think supply was due for a surge post-pandemic. There were people that were waiting to see what happened and were always intending to migrate to New Zealand.”
Spoonley - like Treasury and the Reserve Bank - isn’t convinced the number will necessarily stay elevated long enough to hit 100,000.
In the Budget forecasts - which anticipate New Zealand narrowly avoiding recession - Treasury estimates that net migration will peak at 66,000 in the year ended September 2023 before easing and staying at an average of 40,000 per year from 2024 onwards.
The Reserve Bank made similar assumptions in its latest Monetary Policy Statement, forecasting that the spike will ease, even while acknowledging we are on a much higher immigration track.
As Treasury noted: “Compared to the Half-Year Update, net migration returns much quicker and is around 80,000 cumulatively higher over the forecast period.”
Spoonley says, “it is going to be interesting to see whether they keep tracking up.
“We’ve seen 150,000 arrivals [in a year] but we’ve never seen a net gain of 100,000.”
Whatever the future holds, the current immigration numbers represent a historic turnaround and have dramatically shifted the immediate economic outlook.
For starters - even at 66,000 immigrants - Treasury now sees New Zealand avoiding recession this year.
But economists like Westpac’s Michael Gordon see considerable risk in underestimating the number of arrivals.
Gordon was one of the first to highlight that shocking 100,000 annualised figure.
Westpac is sticking with its forecast, putting it at odds with the Reserve Bank on the inflationary impact and therefore the projected peak for the official cash rate.
“Something is going to have to change for us to not have that. I think it’s a fairly conservative view,” Gordon says of Treasury’s forecast.
“It essentially already has us past the peak.”
Six months ago it was unclear how it would all pan out, Gordon says. “You could make a case for pent-up demand for people to work in New Zealand being unleashed, but what would actually happen was very uncertain.
“Now we’ve got the answer. Certainly in terms of what has happened to date. People are very keen to come here.”
With so much focus on bringing inflation under control and the accompanying politics surrounding both Government spending and the Reserve Bank’s monetary policy settings, surging immigration has just thrown another complicated variable into the mix.
Until early this year, there was no shortage of business leaders and politicians describing the labour shortage, and Government migration settings, as a big driver of inflation.
The big net migration surge should start to address this.
But traditionally, the RBNZ would see rising net migration as inflationary - after all, more people in the country means more demand in the economy.
So does immigration actually solve inflation, by adding to the labour supply, or just create more?
“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.”
At one end is an industry such as aged-care, in which new migrants would be adding to the workforce, he says.
“It certainly won’t be adding to demand because the migrants are mostly under 40.”
At the other end, we have housing.
“People come in and they need somewhere to live immediately. Even if they are not buying, they’re renting ... someone has to own the rentals.
“So it’s adding demand to the housing stock.”
Unfortunately, the housing response was never that strong, he says.
“I know migrants get scapegoated a lot for putting pressure on housing but the reality is we’re bad at building houses for migrants for the same reason we’re bad at building houses for locals,” Gordon says.
“It’s deeper structural issues with the industry. It’s just not geared to building proactively. We’re always reactive.”
We are seeing that again now, he says.
“Just as we’re getting this big population surge, we’ve got some building companies saying next year’s going to be down 30, 40, 50 per cent.
“Could we possibly be a bit more forward-looking about this?”
For the past 30 or 40 years, New Zealand’s net migration rate has cycled through booms and busts, leaving us hopelessly underinvested in the infrastructure and housing required.
Two-thirds of our population growth rate is explained by net migration, so it is central to understanding the changes in our population since 1990, Spoonley says.
“What you see is we’ve had four very significant spikes,” he says.
After a long period of economic turmoil and brain drain through the 1980s, the country opened up to Asia in the early 1990s and we saw the first big spike - albeit to what now looks like a modest peak 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.
“Lianne Dalziel [Labour Immigration Minister] refined the migration settings in 2000 and again we get that spike, until we get to the GFC.”
This time the net migration peak was 59,000, in 2003.
The third spike was more sustained, beginning through the John Key years but carrying on after the Labour Government was elected in 2017.
It includes the highest net inflow recorded, in 2020, as Kiwis flocked home when the pandemic broke.
“And now we’ve got our fourth spike,” Spoonley says.
The trend has been highly cyclical and generally underpinned by economic conditions, he notes.
This one is unusual in that regard, Gordon says. “Usually people move to opportunity and we tend to see bigger inflows when the New Zealand economy is doing relatively well.”
Given we’re talking about at least flirting with recession this year, that doesn’t seem to be the case this time.
In fact, we are only talking about the chance of avoiding outright recession because population growth is going to be masking a lot of the economic pain, he says.
What we’re seeing this time is really just the reversal of the period of Covid restrictions, Gordon says.
“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.”
It is important to step back and look at what is happening internationally, Spoonley says.
Despite the surge into New Zealand, fears about rising international competition for workers aren’t unfounded, he says.
“We had a meeting in Washington - I think it’s true to say that all of the countries that we would normally compare ourselves to are beginning to revise immigration settings. And I think we’re going to see more countries adopting a point system,” he says.
“It is going to be competitive. And the reason for that is the huge labour shortage we’re seeing in all high-income countries.”
It’s estimated that a combination of Covid deaths and illness, retirement and resignation, as well as Trump-era immigration policy, has created a deficit of 10 million workers in the US.
“The Biden administration is desperately trying to work out how to significantly increase skilled migration,” Spoonley says.
In the UK - ironically, given the anti-immigration Brexit move - the Government is also now trying to boost skilled migration.
“They’re saying even if they add 50,000 to the [National Health Service] workforce ... which is what they are saying for next year, there is still a 40,000 shortage.”
The UK and other countries such as the US and Canada are recruiting from sub-Saharan Africa, Kenya and Nigeria, whereas New Zealand’s source countries have reverted to the pre-Covid trend, he says.
The top three sources for New Zealand migrants are China, India and the Philippines.
But the dynamic is the same all over the developed world, Spoonley says.
“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.
“Migration becomes one of the few top-up options.”
So if we’re going to be relying more on migrants to provide our workforce, what can we do better to smooth the flow and keep up with infrastructure investment?
“I don’t think the setup is ideal,” says Gordon. “We don’t really have hard limits for people who enter the country. It’s more of a limit on residency so there’s not the same degree of control in terms of in-flows.
“They come in, they hope they can get residency and sometimes that works out and sometimes it doesn’t.”
That isn’t really an argument for more or less migration, he says. “But I think there is a mismatch in terms of the way we market ourselves to migrants. We need better alignment about the pathway to residency.”
For Spoonley, the big issue is our failure to integrate our thinking on migration into all aspects of social planning - not just business needs.
“We tend to isolate migration from what’s happening elsewhere in terms of our demography,” he says.
“We really do need to talk about some of the regional drivers. So what’s happening in some of those regional economies and we need to think about different industry sectors.”
Spoonley still sees merit in the immigration reset put forward by the Productivity Commission before the pandemic and adopted by the Government - at possibly the worst possible time, as borders closed around the world.
The commission noted that current flows of migration mean our population growth is up around the 2 per cent level, he says.
“And when we get population growth at that level, the deficit between service and infrastructure provision grows wider.
“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.”
At 2.1 per cent annual population growth, New Zealand is right at the top of the OECD, he says.
“The average population growth for the OECD is 0.6 per cent; we’re three times higher than OECD average.”
So does Spoonley have a number in mind that would serve New Zealand better?
“Yes,” he says, with a frankness we’re unlikely to get from either major political party. “I would do what Australia do and say 1 per cent. A 45-50,000 net gain seems appropriate at the moment.”
That would provide a stable population growth path from which we could make sustainable infrastructure investment plans, he says.
“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.”
The Kiwi is under pressure as the US dollar rises on expectation of higher interest rates.