The net population gain from migration hit new highs last month and is seen as a key reason Reserve Bank governor Graeme Wheeler's foot remains closer to the brake pedal than the accelerator.
Permanent and long-term arrivals exceeded departures by a record 5200, seasonally adjusted, last month making 47,700 (also a record) for the year. That is more than four times the average net gain over the past 20 years.
The transtasman flow turned positive last month with a net gain of 17 people, compared with a net outflow of nearly 2500 in October 2012. For the year the net outflow of people across the Tasman was 5300, compared with 39,300 two years ago.
Employment growth in Australia is running at around 1 per cent per annum, which is weaker than population growth, compared with 3.2 per cent in New Zealand.
Of the 107,200 permanent and long-term arrivals in the year ended October, 44,400 went to Auckland, offset by 22,600 departures.
Deutsche Bank chief economist Darren Gibbs said the Reserve Bank's September forecasts assumed the net flow of working age migrants would peak at 42,000 in calendar 2014, which he takes to be consistent with a total net inflow of about 45,000.
"On current trends a net inflow of at least 52,000 seems likely this year and it will take a significant change in trend for next year's assumption not to be exceeded by an even larger margin," Gibbs said.
The net inflow has now decisively exceeded the previous cyclical peak of 42,500 in May 2003.
ASB economist Jane Turner said the net migration boom experienced over 2003 placed considerable pressure on the housing market.
"It triggered a strong increase in house prices and housing construction which shaped much of the economic cycle," Turner said.
"To some extent, this is occurring again. Although construction is starting on the back foot, given the impact of the Canterbury earthquakes and pent up demand in Auckland, affordability is creating some headwind for further house price gains."
Strong net migration and its impact on the economy are key reasons the Reserve Bank has a tightening bias, despite low inflation outcomes, Turner said. ASB expects it to keep the official cash rate on hold at 3.5 per cent until next September.
In addition, loan-to-value (LVR) restrictions were aimed at limiting those with the greatest debt exposures from entering the housing market during a frothy period, she said. "We expect the Reserve Bank will keep high-LVR lending restrictions in place until they can be confident net migration has peaked and the housing market is not at risk of re-igniting should the restrictions be lifted. We believe the bank can be confident of this around the second or third quarter of next year."
Westpac economist Felix Delbruck said the implications of migration for the economy and inflation were ambiguous.
Migration added to the supply of available labour as well as to the demand for goods and services, and the relationship between net migration and the housing market is not straightforward.
"After all, the market slowed earlier this year, just as supply shortages were becoming more acute, thanks to rising mortgage rates and the introduction of LVR restrictions," Delbruck said. "But with mortgage rates now having eased back as well these strong migration figures must raise the Reserve Bank's concerns about the likelihood of a second wind for the housing market."
47,700 net permanent and long-term arrivals in the year ended October.
5200 arrivals exceeded departures last month.
107,200 annual arrivals - 44,400 went to Auckland, offset by 22,600 departures.