Migration to New Zealand is rising

In a year when house prices and interest rates are already going to be major election themes, strong migration flows become even more polarising than usual. And migration is never politically easy.

Australians are well versed in the migration debate, a perennially divisive issue. Played up by both sides in recent elections, it continues to rumble on as house prices surge and a fresh wave of foreign capital is pumped into Sydney and Melbourne. 

Now New Zealand is having its own 'Big New Zealand' moment and both migration and housing will dominate national elections scheduled for September 20. They could even decide the make-up of any coalition Government after those elections. 

The topic of just how many migrants should be allowed in has flared repeatedly in recent weeks, sparked by a jump in annual net migration from virtually nothing in late 2012 to an 11-year high of 34,400 by the end of April. 

ANZ is forecasting New Zealand's net migration is set to hit 45,000 by the end of the year, which would be around the 1 per cent of the population. Added to natural population growth of around 30,000 a year, that would push population growth up to around 1.8 per cent - almost double the average seen over the last decade. 

That is also well above the 1.4 per cent population growth seen on average in Australia over the last 20 years and just below the near 2 per cent seen in 2009 when then Prime Minister Kevin Rudd made his lightning rod 'Big Australia' comments. 

The comparison with Australia is more than tangential, given the main driver of New Zealand's surge in net migration is its relationship with Australia and its jobs market in particular. 

Migration from the rest of the world has risen 13 per cent over the last year, but the biggest cause of the net migration jump is a near halving of the number of New Zealanders leaving to live in Australia and a 32 per cent increase in the number of New Zealanders coming home from Australia. 

The end of the mining boom and a cooling domestic economy have slowed Australian jobs growth to a trickle, while building booms in Christchurch and Auckland, along with strong dairy exports to China, have perked up New Zealand's employment market. 

But the biggest catalyst energising New Zealand's debate about migration was a Treasury scenario in the May 15 Budget forecasting a rise in net migration to 41,500 by late 2014 would increase short term interest rates by almost 1 percentage point. 

The economic element of the debate has been building in recent years as both Treasury and the Reserve Bank have emphasised the role of migration surges in putting pressure on house prices and interest rates. Last year the Reserve Bank estimated a 1 per cent increase in population caused an 8 per cent rise in house prices over three years. 

Opposition Leader David Cunliffe leapt into the debate after the budget, promising a Labour-led Government would tighten migration controls to take pressure off interest rates, house prices and social infrastructure such as hospitals and schools. 

Cunliffe's comments added to a steady drumbeat of anti-migration comments and proposals from the nationalist New Zealand First Party led by Winston Peters.  All three Opposition parties, Labour, Green and New Zealand First, have also committed to restricting foreign investment in residential property. 

The National-led Government hit back at Labour and New Zealand First this week. Prime Minister John Key accused Labour of resorting to cheap populism that risked alienating New Zealand's growing communities of new Chinese and Indian migrants without solving the underlying problems of housing un-affordability. 

"To be blunt, David Cunliffe is looking at his polls and he is desperate to smack anything that goes vaguely past him," Key said in Parliament. 

"That might be a populist thing to argue about, but most New Zealanders will take a step back and say this is a country built on migration, our population is four and a half million, migrants have added a lot to New Zealand," Key said. 

"For the most part, he knows like I know that you actually can't very easily turn off that tap of people who have free rights to come here, like Australians," Key said. 

"There was a time not so long ago that the Labour Party was seen as the party of migrants. I guarantee you when he goes to those meetings with the Chinese Community and the Pacific community he will have a completely different message from the one he's wanting other people to believe." 

Cunliffe responded by saying Labour would take a more measured approach to migration, pointing to a targeted 'sweet spot' for net migration of between 5,000 and 15,000 a year. 

"We would manage net migration flows as far as possible to a steady, positive, predictable level that is sufficient for our housing market and our schools and our hospitals to cope with," Cunliffe said. 

The debate ramped up later in Parliament when Finance Minister Bill English accused Labour of 'dog-whistle' politics that could affect businesses looking to deal with skill shortages. 

John Key's National-led Government is defending its more open migration policy and having few restrictions on foreign buying of land and houses but opinion polls show that stance is not popular. 

A 3News Reid Research poll released this week showed two thirds of voters wanted immigration restricted, while a TVNZ Colmar Brunton showed 68 per cent of voters favoured a register for foreign home buyers. 

Opinion poll support for National more broadly remains well ahead of the centre-left block of the Labour and Green parties but New Zealand First's Winston Peters is widely seen as the kingmaker in any coalition negotiations after September 20. 

Peters has made migration and foreign ownership the central planks of his appeal for support, particularly outside of Auckland and Christchurch where populations are flat to falling and voters are unhappy about having to pay higher interest rates and cope with restrictions on low deposit mortgages because of the double-digit house price inflation in those two big cities. 

John Key has already been forced to admit this year he may have to do a deal with Peters to win a third consecutive term in Government. 

The debate over migration and housing is already at the centre of the pre-election skirmishes. They could also feature in any post-election coalition negotiations.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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