New Zealand Chops Migration to Deflate Housing Bubble

New Zealand's prime minister is cutting immigration to help deflate the nation's housing bubble and also to raise wages.
Partha Narasimhan via Unsplash

New Zealand’s prime minister is cutting immigration to help deflate the nation’s housing bubble and also to raise wages.

The small country near Australia is suffering from a real estate bubble caused by local companies’ demand for more immigrant house buyers, consumers, and workers. The housing affordability problem is worsened by the growing population of roughly 200,000 foreign temporary workers.

“We’ve long pointed to the fact a [economic] growth strategy that is solely built around [the rising] housing market and immigration [inflows] is not a sustainable long-term strategy,” left-wing Prime Minister Jacinda Ardern told the main radio broadcast network on May 18.

“The pressure we have seen on housing and infrastructure in recent years means we need to get ahead of population growth,” cabinet minister Stuart Nash said May 17.

New Zealand’s rising real estate bubble is mirrored in many other wealthy high-immigration nations, including the United Kingdom, Australia, and the United States.

However, U.S. political parties and media rarely mention migration’s impact on real estate prices, said Mark Krikorian, director of the Center for Immigration Studies:

In our collective imagination, we think of our country as having essentially unlimited space, so the idea of immigration raising housing prices just doesn’t register with people in this country in the way that it does in England or in New Zealand.

But migration’s impact on housing could become a big issue “if it’s presented as part of a broader critique,” he told Breitbart News, adding:

It requires a certain amount of education too. Newcomers aren’t settling an inch-thick everywhere in our huge country, they’re moving to very specific urban areas where they do have an influence on housing prices, especially when the local or state regulations make it hard to build more housing.

“A driver of housing prices is our immigration-fueled population growth, and I don’t know how [any politician] can get away from that,” said Andrew Good at NumbersUSA. Populists should be “working on thoughtful, comprehensive proposals that start with the question, ‘Hey, what’s the argument for allowing this or that on the demand side?”

In the United States, investors have long used migrants to inflate the rental and housing in coastal cities, such as os Los Angeles and New York. For example, legislators are offering $2.1 billion in aid to help keep illegal migrants on the job and paying their rents. Similarly, President Joe Biden’s January immigration bill includes a proposal by U.S. investors who want to spike housing prices in the heartland by delivering more visa workers to heartland states.

In New Zealand, the immigration reform is being pushed by the left-wing prime minister. It is being opposed by the right-of-center business part, which is calling on Ardern to spend taxpayer dollars to subsidize home building and purchases.

On May 18, the New Zealand radio anchor echoed those business critics when he asked Ardern if the reduction in temporary workers and migration would slow the nation’s overall economic growth:

Ardern: Our intention is to go and say [to employers] “Look, for those areas where you are highly reliant [on foreign workers], what is your [local] school’s training and education plan? What is the route that you’re doing to ensure that you’re engaging within [the labor market in] New Zealand?”

Anchor: But do you accept that New Zealand’s growth will slow [with less migration]?

Ardern: Well, actually we’ve also got a look at what impacts it has on local employment rates, what happens with wages as a result. You know, when we look at … what’s happened in horticulture, or in our dairy sector, they have lifted wages in order to access the domestic workforce. It also encourages training and education to ensure we have a pipeline of [home-grown] New Zealand workers.

The small nation is also deploying and developing robots to harvest crops with less labor.

Ardern’s migration reform is being driven by the very unpopular impact of legal and temporary migration on housing prices. A 2013 report by the Reserve Bank of New Zealand reported that even low migration rates spike housing prices for young couples who are trying to raise families:

Net migration changes are consistent with large housing effects. An additional net inflow that adds 1 percent to the population causes an 8 percent increase in house prices over the following three years and an additional house is built for around every six migrants. This is materially more than the existing number of people per household in New Zealand (around 2.5).

Long-term immigration to the small nation spiked to almost 100,000 people in 202o. The small country has a population of almost five million.

The housing problem worsened in 2020 when the national bank reduced interest rates as migration fell rapidly during the 2020-21 coronavirus pandemic. The low-interest rates made it easier for more locals and migrants to compete for houses amid the shortage. “New Zealand property prices have gone vertical,” reported macrobusiness.com.au, under the headline, “How RBNZ [Reserve Bank of New Zealand] pump-primed the property bubble.”

The Financial Times (FT) reported in March 2021:

Home prices have risen steadily in the pandemic, and in 12 months through to the end of January were up 19 per cent in New Zealand. The price of a typical Auckland home soared past $720,000, embarrassing Prime Minister Jacinda Ardern.

A global political celebrity, the liberal Ardern was elected on a promise of affordable housing. Fed up, her government has ordered the central bank to add stabilising home prices to its remit, starting March 1. It is novel and healthy for a politician to recognise the unintended consequences of easy money.

This is widening wealth inequality, pushing homes beyond reach for the middle class, and not only in New Zealand. Of 502 international cities tracked by Numbeo, a research firm, prices are “unaffordable” (more than three times median family income) in more than 90 per cent. In recent years, the tiny minority of affordable cities has been shrinking toward zero.

“Ardern’s [banking] move may not slow the housing boom soon, because supply-and-demand dynamics are too strong,” the FT added.

Ardern has also moved to cut tax breaks for investors who buy multiple homes.

The popular reset of migration law is hotly resisted by investors, business groups, and their foreign workers. RNZ.co.nz reported May 18:

Migrant Workers Association spokesperson Anu Kaloti used the words “shocking” and “absurd” to describe the immigration reset.

She agreed that migrants were exploited and paid lower wages, but said what needed to change was not the number of migrants – rather the rules which bound them to a single employer in order to be sponsored.

The lobby group has a Facebook page featuring a May 20 post saying, “In solidarity with Palestine.”

“If you slow population growth, you slow [national economic] growth, and it also slows the economy,” said Micahel Gordon, an economist at the country’s Westpac bank, which gains wealth when investors borrow money to build more homes or create new companies, according to RNZ.

Ardern also rejected claims by business leaders that migrants are needed because New Zealanders are reluctant to work. “I disagree with that totally,” she told RNZ, adding:

The kiwifruit fruit industry were able to do in terms of completely shifting the balance of their workforce from overseas-based to a predominantly domestic one through Covid. That’s not to say it’s not been without it’s challenges, it has. But this is where we need to work with industry.

“Housing is a fundamental issue to the public,” said Good from NumbersUSA. But the U.S. debate is focused on zoning issues, although there is some reporting about the role of investors in pushing up house prices, he told Breitbart News.

In the United States,” he said, “the quality and thoroughness of the policy discussion is astoundingly shallow.”

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