Reserve Bank says slow migration

The Herald reports:

The Reserve Bank has told the Government to review immigration policy in a bid to stem rising house prices.

The call comes days after Prime Minister John Key told the central bank to “just get on with it” and introduce immediate restrictions on rampant property investors as the average Auckland house value nears $1 million.

In a speech in Wellington yesterday, Reserve Bank deputy governor Grant Spencer shot back at Key, warning that moderating housing demand was a “team effort”.

While the bank has signalled new measures to tackle the effect of investors and possible borrowing limits linked to people’s incomes, no firm deadline has been given other than saying they were possible before the end of the year.

But an economist said urgent measures were needed “overnight” and the failure to act now would spark a new run on investment property by “uninformed, under-capitalised investors”.

In an unusually direct comment on immigration policy, Spencer told the Government to review the number of people moving to New Zealand, as the impact of high net migration on housing could not be ignored.

Record net migration was a key driver to surging housing demand, he warned. “Like taxation of investor-owned housing, migration policy is a complex and controversial issue,” Spencer said.

“However, we cannot ignore that the 160,000 net inflow of permanent and long-term migrants over the last three years has generated an unprecedented increase in the population and a significant boost to housing demand.”

I agree with the Reserve Bank that the Government needs to look at reducing migration levels. I’m very pro-migration and migration is a net benefit for NZ. But if net migration is too large for the infrastructure to keep up with, them it has some negative impacts also.

The problem is that the main lever that the Government has, which is the level of residency visas has in fact been pretty constant for many years. The growth is in the other areas.

There are four aspects to net migration:

• NZers leaving NZ – has dropped from 62,000 peak to around 35,000 a year. Government can’t control this and is a good thing fewer are leaving
• NZers returning to NZ – has increased from around 22,000 to 31,000 a year. Government can’t control this and is a good thing more Kiwis returning
• Non NZ citizens leaving NZ –  decreased slightly from 26,000 to 22,000.
• Non NZ citizens arriving in NZ – increased from around 65,000 in 2008 to 95,000

So around 35,000 of the increase in net migration is simply NZers making decisions to stay or return.  And around 30,000 is more “foreigners” coming to NZ for over a year. But the 95,000 inwards is also made up of quite distinct groups.

• Australians moving here. Government has no power to stop. Around 10,000 a year now doing this, up from 5,000
• Students on a student visa was 14,000 in 2008 and now 28,000
• Workers on a work visa was 23,000 in 2008 and now 39,000
• New residents on a residency visa was 16,000 in 2008 and currently 15,000

So the growth is not in making it easier for people to get residency here. It is in student and work visas.

You can start restricting both of these, but there are economic consequences if you do. International students are a cash cow for NZ. We earn billions off them, and having studied here as a student doesn’t give them residency rights after they finish studying.

Work visas are meant to be issued only for jobs where there is a shortage of suitable NZers etc. There is probably room for some tightening here, but it means you will face more employers being unable to recruit staff, and hence hit economic growth.

The residency visas is where the Government can most easily make changes. They could increase the points needed to qualify to come here. But even if you halved them from 15,000 to 8,000 that would not make much impact on the overall net migration numbers.