By Gareth Morgan*
They say a picture can paint a thousand words
So let’s save words and cut straight to the chase on the issue of immigration and house prices…
Over the past two decades migration has had a strong influence on New Zealand’s property prices.
Net long term inward migration is the number of people arriving who intend to stay minus the number of people leaving who intend to stay away.
When the net number has been positive and large, house price inflation is high.
When the number is negative or low house price inflation is negative or low too.
Net inward migration has been rising over the past two years and this hasn’t yet had the boost effect on house prices you might expect.
It seems likely that some of this is due to the RBNZ’s loan deposit restrictions, which was designed to keep the lid on prices.
The composition of migration might be another factor (some migrants may simply live with family members already resident here).
The experience from 1998 to 2000 shows that the relationship between migration and house prices isn’t exact – the trends can diverge for a while.
But with last week’s Budget economic update forecasting that net migration would stay above 20,000 for the next two years, it looks like upward pressure on house prices will be with us for a while.
As an aside, there’s been a lot of finger-pointing recently, as people try to blame particular groups of migrants for house price pressures.
The fact of the matter is in the year ended March 2014, 13,000 more people left NZ permanently for Australia than came the other way so you can’t blame Australia’s economic woes for what’s happened in housing.
The coming year may be a different story though – outflows to Australia are falling and inflows are rising. Last year the flow of New Zealand expats returning from Australia was the highest in over two decades. With over 500,000 New Zealanders living in Australia, the potential impacts are significant.
A common myth is that most of New Zealand’s migrants arrive from China. They don’t – the UK was the single largest source of migrants last year and indeed every year over the past two decades.
Compared to 8,600 net arrivals from China last year, 14,000 arrived from the UK.
There are significant levels of inward migration from other countries too – most important in this respect is India where net arrivals exceeded 7,000 last year after strong growth.
The significance of migration from the UK can be summed up best with this simple fact: since 1992 365,709 people (net) have arrived from the UK to live permanently in New Zealand – more than enough to fill Wellington City and the Hutt Valley.
Sure, some of these may well be returning Kiwi expats, but no-one knows how many.
Long term net migration from China over the same period was 129,000, India 85,000. So while focusing on migration patterns from Asia seems to be a hobby for many, it won’t get you very far if you want to understand fundamental pressures in the housing market.
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Gareth Morgan is a director of the Morgan Foundation. This article was first published here. It is here with permission.
16 Comments
Looking at volume of local FX transactions (which also follow migration and house prices) they have been fairly steady the past few months, suggesting that if it is the money people bring rather than the people, it might not get the boost indicated by the raw migration figures.
Part of the reason I think capital (as measured by fx transactions) is the variable in the middle is that this is the ratio of private dwellings to households over time, so the population based pressure on housing (adjusted for the number of houses) rather than financial
https://www.dropbox.com/s/w4maxkgym97awqm/dewllingdivhouseholds.png
At least GM has a pointer to the problem.
Notwithstanding his information there is the pressure of investor v FTB.
Here I would suggest that there is an upward influence from:
1. Locals using their equity to take advantage of low interest money to bid higher than the FTBs
2. In Auckland the cashed up Asiatics who may have a language deficit in relation to jobs or business activity use rentals as a means of earning some income.
3. There are foreign buyers who find NZ (again Auckland in particular) who are able and willing to overbid locals.
Add this to GMs mix and the answer is getting closer than John Key ever will to the solution. And it ain't just supply. It is misdirected demand as well.
Then there is the real world.
It's not the ethnicity, or the country of origin, or where they originate from
It's the ones with the MONEY, money that often has no provenance
But cashed-up immigrant under-bidders with money do play a very significant role
They push up the price
If you had a house in a desirable location worth $2 million, and
If you held an auction with 10 very willing bidders in attendance, all willing to buy, where
7 of the attendees were Kazahkstanis with $2 miilion each, and
2 of the attendees were Innuit Eskimo Indians from Canada with $2.1 million each, and
1 was a local Methamphetamine drug kingpin with $3 million in his pocket
I can tell you now who the successful buyer will be, and "he/she" will pay at least $2.2 million to get it, might even go $2.5 million to knock the others out of contention
AND if you take away the 9 under-bidders, and if there was no reserve, he/she would definitely be able to buy it for a lot less
So, the real question is, which single group is coming in with all the money? Not sure it's UK'ers
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11257808
He and his family are MY kind of immigrant
Great story and exactly what we expect to happen again this time. Immigrants starting uinversity (both him and his wife, with son later down the line) in a provincial town that they prefer over auckland. "easy to get around in" just drive from door to door, anywhere in 10 mins.
Further to Iconoclast's comment it is important to identify where each group is largely ending up in NZ. Is it Asians - AKL/ N Shore, Saffers N Shore, Poms - where do they go - is it all over NZ with their possible dairy background, Indians ??? Students - are they evenly distributed around all the universities or just focussed on AKL?
IPC (international pacific college) in palmy is a main attractor for imigrant students; expensive but growing very strongly. Massey uni always populator too of the uni's outside of auck; exp for those looking for a lower cost option, massey in pn would be the pick.
For a moment I thought Gareth was going to suggest killing UK migrants to stop them affecting the local economy.
However the points are correct with a few additions. I emigrated from the UK several years ago and was taken in by the land of milk and honey I was told about at all the seminars and in the wealth (pardon the pun) of information thrown at you in websites and brochures.
On arriving here with over 20 years experience in financila services I was fortunate to get a job that the company had been trying to fill for over 6 months. However I was not able to live my dream of being mortgage free and having a half acre section.
I have a far larger mortgage than I ever would have had in the UK, am probably poorer than I've been but can categorically say I'm also happier and will never return.
Raegun makes a good point also, this country needs hard working people that want nothing more than to better themselves and can in the course of doing so benefit this country greatly.
What needs to happen is assurance that those coming if they do not speak English can/will learn to do so, and in return we should ensure locals also learn a second language - I have seen first hand the arrogant British apporach of talking louder and slower in a foreign country and rolling eyes because a Chinese local doesn't speak English.
Property here is far too overvalued, and everyone knows it, but no-one will tackle it head on and with only a 3 year election cycle it would be policitical suicide.
We’re all familiar with the stories of Russian oligarchs buying up mansions in London, but this is a much broader phenomenon. A torrent of capital from wealthy people in emerging markets—from China, above all, but also from Latin America, Russia, and the Middle East—has flowed into the real-estate markets of big cities in other countries, driving up prices and causing a luxury-construction boom. A recent report by Sotheby’s International Realty Canada examined more than twelve hundred luxury-home sales in Vancouver in the first half of 2013 and found that foreign buyers accounted for nearly half of sales. In Miami, a huge influx of money from Latin America has enabled the city’s housing market to recover from the bursting of the housing bubble, and has set off a condo-construction spree. Australia has become a prime market for Chinese investors, who Credit Suisse estimates will buy forty-four billion dollars’ worth of real estate there in the next seven years.
What’s so special about the places that attract all this foreign money? The economists Joseph Gyourko, Christopher Mayer, and Todd Sinai have developed a theory about what they call “superstar cities.” Looking at data from 1950 to 2000, they found a small number of cities where housing prices rose steeply, and concluded that high earners tended to cluster together over time, with the result that rich cities tend to get richer.
Vancouver isn’t an obvious superstar. It’s not home to a major industry—as New York and London are to finance, or San Francisco to tech—and it doesn’t have the cultural cachet of Paris or Milan. Instead, Vancouver’s appeal consists of comfort and security, making it what Andy Yan calls a “hedge city.” “What hedge cities offer is social and political stability, and, in the case of Vancouver, it also offers long-term protection against climate change,” he said. “There are now rich people around the world who are looking for places where they can park some of their cash and feel safe about it.” A recent paper by two Oxford economists bears this out, showing a tight correlation between London house prices and turmoil in southern and Eastern Europe. The real-estate boom in Miami has been magnified by political unrest in Venezuela. And Vancouver, which has a large Chinese population, easy access to the Pacific Rim, and nice weather, has become a magnet for Chinese investors looking for insurance against uncertainty. A Conference Board of Canada report found that Vancouver’s real-estate market is tightly connected to what happens in the Chinese economy.
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