Let's talk migration

Migration that is too fast can put a strain on the economic system. Photo / Richard Robinson

We're now having a fractious debate about foreign buying of houses, but the more important and tougher debate we should be having is about migration.

Does it generate the right type of long-term economic growth, or does it just pump up house prices and interest rates, suppress wages and reduce the incentives for New Zealanders to get the necessary skills for a modern economy?

None of the three biggest parties, National, Labour or the Greens, have challenged the consensus of at least the past 15 years that we need plenty of skilled and unskilled migrants.

Employers argue they need both types to keep their businesses running and growing. The Government has an annual target of 45,000 to 50,000 new permanent residents, including about 60 per cent skilled migrants, more than 32 per cent family reunifications and more than 7 per cent for humanitarian reasons.

More than 300,000 migrants have arrived in the past 15 years under National and Labour Governments.

New Zealanders see themselves as the descendants of migrants in one form or another with a welcoming approach to new migrants. That is all good, but migration that is too fast can put a strain on the economic system and interest rates, the exchange rate, house prices and unemployment show the stresses of the latest migration surge.

When there are restraints on the supply of houses, schools, motorways and hospitals, as there are in Auckland, prices and interest rates respond.

Former Reserve Bank economist Michael Reddell pointed last week to Reserve Bank modelling showing a 1 per cent rise in population will lead to a 10 per cent rise in house prices.

Last year, the Reserve Bank forecast a surge in net migration to more than 45,200 would increase the Official Cash Rate by 50-100 basis points and nationwide house price inflation by four percentage points.

Net migration is increasing our population by more than 1 per cent a year and that's not counting natural population growth.

All this creates costs for taxpayers and ratepayers because the infrastructure costs and rent subsidies triggered by net migration leads to higher rates and taxes.

Ratepayers may blame the Auckland Council for their near-10 per cent rates increase this year, but they could as easily blame our migration policy makers.

The other costs are borne by our businesses and exporters through interest rates and the high exchange rate.

High net migration has helped suppress wage growth and kept unemployment high at more than 146,000 or 5.8 per cent of the workforce.

Why can't we train some of those 146,000 unemployed? Is the Government taking the easy option of migration to avoid ensuring kids graduate with the literacy, numeracy and life skills for jobs?

The migration debate is also intertwined with the debate about foreign buying of houses. New Zealand may discover after October 1, when the tax residency status of buyers will be recorded, that much of the money being pumped in from overseas is going through the accounts of new migrants, students and those on short-term work visas, all of which would be recorded as local buying.

Building a supply of houses and skills will take pressure off house prices, interest rates and unemployment, but in the short term, a debate about the number of migrants is needed.

Debate on this article is now closed.