Reserve Bank says migration impact on housing 'muted' so far

Thursday 11th September 2014

The Reserve Bank is keenly watching the impact New Zealand's decade-high net migration inflow is having on the housing market, which it says hasn't pushed up property prices as aggressively as in the past.

The central bank is monitoring the impact strong migration inflows have on house price inflation as one of four measures in assessing the impact of its interest rates hikes this year, it said in its September monetary policy statement. The bank has been surprised by the "muted" impact, which it says may be down to the composition of those flows, with fewer kiwis leaving for Australia and younger people arriving on temporary working visas.

“With slow growth in major economies, and New Zealand's prospects relatively strong, net immigration has risen further in recent months and is providing increasing support for housing and consumer demand,” the central bank said. "House price inflation is weak compared to with what past relationships with net immigration, interest rates and other factors would suggest, and the projection assumes that this weakness continues."

Government figures show New Zealand’s annual net migration was at an 11-year high in July as fewer New Zealanders left for Australia while the inflow of new arrivals rose to a record 102,400. In July, the country gained a net 41,000 annual migrants, eclipsing the central bank’s forecast peak of 37,000, in its June monetary policy statement.

The bank said it now expects migration increase "substantially", peaking at the end of the year, without giving a specific forecast. Over the next two years, it expects net immigration will add more than 1.5 percent, or 50,000 people, to the working population. The Treasury last month revised its own projections in the pre-election fiscal and economic update, predicting net migration to peak at 42,500 this month, from an earlier forecast of 38,100.

The Reserve Bank has previously tagged the country’s strong inbound migration as a source of economic growth, while warning a rapid influx of new migrants may push up house prices in Auckland and lead to broader inflationary pressures.

The bank is also closely watching Australia's labour market, where investment in the mining boom is slowing. The Reserve Bank expects Australian unemployment to remain static at around 6 percent, but said divergence between labour markets could see a further boost to New Zealand's net immigration as growth spurs local job opportunities.

BusinessDesk.co.nz

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