Gareth Kiernan
Net migration is one of the big uncertainties currently when trying to forecast future residential construction activity levels. Migration can be a challenging factor at the best of times, with arrival numbers at risk of changing substantially due to shifts in government policy settings, while there is little control over departure numbers, which can be thrown around by economic conditions both here and overseas, particularly Australia. There were major disruptions to migration patterns caused by the COVID-19 border closures, but five years after the start of the pandemic, it remains unclear what the new “normal” level of net migration might be going forward.
Monthly arrival numbers of foreign citizens bottomed out in August last year and have averaged almost 10,600 per month over the last six months. This figure is considerably higher than the average of almost 9,000 foreign arrivals per month between 2015 and 2019, when New Zealand’s unemployment rate averaged 4.7% and immigration was high by historical standards. Current labour market weakness, with an unemployment rate of 5.1%, suggests that arrival numbers should still be retreating from over 20,000 arrivals per month reached in the first half of 2023, but that decline is not occurring.
Kiwi departure numbers also remain elevated, reaching their highest level since 2012, when the combined effects of the Christchurch earthquake, Global Financial Crisis, and Australian mining boom had encouraged more people to leave. The gap between Australia’s 4.1% unemployment rate and New Zealand’s rate of 5.1% at the moment exemplifies the strong draw for people to move across the Tasman.
With foreign arrival numbers still high, our latest construction forecasts included the first upward revision to our net migration outlook in a year, adding a total of almost 40,000 more people to the population between now and mid-2029 than we had previously predicted. This shift has significant implications for underlying demand for new housing throughout the forecasts, underpinning the need for at least 12,400 additional homes over a five-year period (we expect some of the additional demand to be met through slower declines in the number of people per household).
However, it’s worth noting that our forecast, shown in Chart 1, of an average net migration inflow of about 13,000 people per year over the five years to June 2029 is low, both by historical standards and standard population projections. The average net inflow during the second half of last decade was 59,600pa, Stats NZ used a working assumption of 25,000pa in its most recent population projections, and we include a figure of 30,000pa in our own medium-term population projections. A migration outcome closer to our medium-term baseline for net migration would imply an additional 6,500 new dwellings would be needed per year – which could see a medium-term build rate of about 34,000, close to current consent numbers. These figures highlight the importance of net migration in determining residential construction activity levels.
At a regional level, the effects of higher net migration are obviously not spread evenly across the country. Looking at the 2015-2019 period, Queenstown-Lakes attracted more than three times its “fair” share of foreign citizen arrivals (as suggested by its share of New Zealand’s overall population). The other areas with a share of foreign arrivals that was larger than their share of the population were Auckland (1.62 times its fair share), Wellington City (1.26 times), Christchurch (1.15 times), and Hamilton (1.04 times). Unsurprisingly, therefore, residential construction in the main urban centres is likely to be the biggest beneficiary of higher immigration.
The balancing act currently required for businesses across the construction industry is to ensure they remain viable during a period of more difficult operating conditions, but that they also retain the ability and capacity to respond to any future upturn in demand in a timely manner. These capacity issues are particularly pertinent given the current outflow of Kiwis to Australia, with its stronger labour market and perceptions of better job opportunities. Filled job numbers in the construction industry in New Zealand have already fallen by 6.1% over the last year, and if many of those workers are lost across the Tasman, the industry could once again face skill shortages if, or when, demand conditions improve.
