Almost 119,000 people flowed into New Zealand over the 12 months to the end of September – the largest population gain through migration for any 12-month period.

This boom in net migration has seen NZ grow by the population of a decent-sized city over the past year.

The population surge came from a net gain of 164,000 overseas citizens coming to the country long-term and a net loss of 45,000 New Zealand citizens leaving our shores – a new record level, with Stats NZ estimating that about half of those departures were to Australia. 

Westpac economist Darren Gibbs says migration figures will go through several rounds of revisions over time. Monthly arrivals stood at about 21,000 in September, down from a peak of more than 26,000 in April but still about 8,500 more than in September last year.

Most immigrants are coming from India and, to a lesser extent, China and the Philippines. About a third of people arrived on a work visa, and about a quarter on a visitor visa. 

Given the increasing size of this flow, understanding the economic impact has become more important than ever, Gibbs says.  

“To date the huge migrant inflow seems to be helping to alleviate tightness in the labour market while also underpinning a moderate lift in house sales, prices and especially rents.

“How these competing influences on the economy and inflation continue to play out will have a bearing on the required level of interest rates over the year ahead.” 

Wage levels

Historically, migrants from India, China and the Philippines have earned slightly below average wages in NZ. If 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.

Many migrants have moved to Auckland. As the country’s biggest city, this has helped spur economic activity despite nationwide gloominess, while putting upwards pressure on house prices, ANZ’s latest Property Focus says.

While Auckland has been building houses rapidly in recent years, 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, given these regions are close to Auckland.

Labour market

It’s not just house prices where pressure is expected to emerge; rents are also likely to see sustained increases from higher population growth. However, Zollner says 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.

Given the unprecedented amount of extra people who have recently arrived in the country and our inability to wish new houses into existence, she says there is a clear risk these extra people will cause rents, house prices, inflation and mortgage rates to rise more than the bank or the RBNZ are expecting.