About 199,500 non-New Zealand citizens immigrated over the past 12 months, and the net gain was 110,200 once those leaving were accounted for. That is more people than live in Palmerston North or New Plymouth when not enough houses are being consented or built to keep pace.

And residential building consents dropped 5 per cent in September to levels below those before the pandemic. 

Over the past 12 months just over 40,000 new dwellings were consented, down 20 per cent on the previous year. The fall in consent numbers has been widespread, including Auckland, down 22 per cent over the past year; Wellington, down 18 per cent; and Canterbury, down 17 per cent.

The extra demand for housing is putting upwards pressure on house prices and rents, especially in Auckland.

Almost half recent migrants to NZ have come from India (38,197), the Philippines (30,350) and China (19,876), which is well above their usual percentages of our migrant pool. Historically, migrants from these countries have earned slightly below average wages here.

To the extent that remains the case, that implies more upwards pressure on lower-priced homes and rentals relative to those at the top end of the market, ANZ’s latest Property Focus report says.

Market churn

The size of migrant flows in both directions mean property market churn will be higher than otherwise the case. This will support house sales volumes and also rents, to the extent it makes rent reviews more frequent (within the constraint of the new rules limiting the frequency of rent changes for existing tenants).

The recent boom in net migration has seen NZ grow by the population of a decent-sized city over the past year. Of course, no new city has popped up in NZ this year. Rather, many migrants have moved to Auckland.

As the country’s largest city, it naturally provides a gateway for new migrants to establish themselves, easily find a job and connect with others from their country of origin. Migrant flows into Auckland have helped spur economic activity despite nationwide gloominess.

The concentration of migrants arriving in Auckland has placed upward pressure on the city’s house prices. Auckland has been building houses rapidly in recent years, but this is not keeping pace with the volumes of new arrivals, making the evolving demand-supply balance a tailwind for prices once more.

ANZ chief economist Sharon Zollner expects the additional pressure in the Auckland housing market to cause spillovers to neighbouring regions such as the Waikato and Bay of Plenty as relative prices adjust.

“It's not just house prices where we expect upwards pressure to emerge; rents are also likely to see sustained increases from higher population growth. However, at some stage the cooling labour market will reduce tenants’ wage growth, meaning they will be less able to pay higher rents. This will limit landlords’ ability to continue to raise rents.”

Pricing pressure

Higher rents will directly feed through to the CPI, boosting the non-tradeable inflation component on which the RBNZ focuses, Zollner says.

“High migration won’t just increase the CPI via rents; it will also result in higher demand and potentially upwards pricing pressure on everything a new Kiwi might need after they’ve arrived, such as durable goods like washing machines, furniture and televisions.”

She says the extent to which the spike in immigration feeds through into higher prices remains to be seen, and in practice will be difficult to estimate precisely, but it is an upside risk to inflation and could contribute to mortgage rates being higher for longer.

On the other hand, most migrants are moving here to work, and there is no question that huge boost in labour supply has opened up slack in the labour market. This is a positive supply shock that boosts GDP and reduces inflation pressure by dampening wage pressures, Zollner says.