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Economy

Skyrocketing home prices fuel New Zealand immigration debate

A five-year surge has pushed the average house price in Auckland to nearly NZ$1 million.   © Getty Images

WELLINGTON Soaring house prices in Auckland, New Zealand's largest city, are prompting growing calls for cuts in immigration, which is running at record levels.

It is not only politicians and commentators that are talking about cutting the number of immigrants -- even the central bank has joined the chorus, alongside one of the country's largest commercial banks. As a result, immigration is likely to be a hot issue ahead of next year's national elections, when a populist political party with a history of anti-immigration rhetoric could tilt the balance of power.

A Newshub Reid Research poll released in August showed that 60% of the 1,000 people surveyed agreed that the government should let fewer newcomers into New Zealand. But public anti-immigration sentiment has not reached the levels reflected in Britain's recent vote to leave the European Union or the rise of Republican presidential candidate Donald Trump in the U.S. This is largely because the local economy escaped the worst fallout from the global financial crisis and has since been relatively stable, despite a slowdown over the last year.

Still, a shortage of housing in Auckland has led to a five-year surge in prices to nearly 1 million New Zealand dollars ($735,100) for an average home. Reports of Auckland families living in cars and garages as rents soar could pose a threat to the center-right National Party's hopes of winning a fourth consecutive election next year.

Nearly half of new immigrants settle in Auckland, where 40% of the local population of 1.4 million was born overseas. Nationally, a quarter of the 4.5 million population was born outside New Zealand, a level slightly below that of neighboring Australia.

The Reserve Bank of New Zealand, the central bank, in July called on the government to consider cutting the level of immigration as part of the solution to the Auckland housing crisis.

"We cannot ignore that the 160,000 net inflow of permanent and long-term migrants over the last three years has generated an unprecedented increase in the population and a significant boost to housing demand," Deputy Gov. Grant Spencer said.

David Hisco, chief executive of ANZ New Zealand bank, also said the time had come to review the number of immigrants.

"Immigration has been great for New Zealand," he said. "We are a harmonious, diverse and inclusive society. But Auckland's housing, roads, public transport and schools are struggling to cope."

Hisco added, "Let's have an honest and sensible debate about immigration, using facts rather than prejudice, to see if we should push the pause button."

The main opposition party, the center-left Labour Party, said it would cut the number of immigrants entering with work visas to ease demand in Auckland. "[The government] increased that by 5,000 alone last year, at a time when the economy was slowing," Labour Party leader Andrew Little said. "And I think most people would say that that just doesn't make sense."

The populist New Zealand First Party opposes large-scale immigration and leader Winston Peters wants to slash migrant numbers. Polls show support for New Zealand First rising from around 6.5% early this year to around 10% now. If carried through to the elections due in the second half of next year, that would give it around 12 seats in the 120-seat parliament. New Zealand First could determine the balance of power between the National Party and a Labour and Green Party alliance.

"Motorways are clogged and housing is unaffordable and scarce," Peters said. "Immigration must focus on benefits to New Zealand -- people we need, not people who need us."

THE HUMAN ELEMENT Prime Minister John Key has resisted calls to reduce immigration. He argues that New Zealand needs to import workers to keep the economy growing and that much of the growth in net migration is due to fewer New Zealanders going overseas.

A record net immigration total of 69,100 people -- long-term arrivals minus long-term departures -- in the year to June was also due to more people coming to study or on working holidays, as well as a higher number of work visas.

"When you talk about having the component parts to grow a strong economy, you don't just need good physical infrastructure; you need the people to do that," Key said.

"If you break it all down, which bits would you want to stop? Certainly not returning Kiwis or Australians; certainly not people we educate that we make money out of; certainly not holidaymakers who come as part of a working holiday program," he said.

Peters, a former treasurer and foreign affairs minister in previous governments, is among those arguing that many immigrants are not highly skilled and are filling lower paid jobs in elderly care, hospitality and on dairy farms.

"The biggest driver of record immigration has been a mass influx of people coming in, many on work visas, and many low-skilled," he said.

A total of 125,000 long-term and permanent immigrants arrived in the year ended in June, including 39,000 with work visas, 36,000 New Zealanders and Australians (who do not require visas) and nearly 28,000 students, many of whom also work part-time. Another 15,000 arrived on residence visas, which include business investors, skilled migrants, family members and refugees.

Asians accounted for more than 45,000 arrivals, almost double the number from Europe. The highest number of immigrants came from India, followed by Britain, China and the Philippines.

Nearly 10,000 Indian students arrived during the year, although numbers fell 30% in the first half of this year following revelations of fraud in financial documents and English language tests that support applications. More than half of Indian student applications have been turned down in the six months to May.

Figures released in July by Quotable Value, a valuation agency, showed the average Auckland house was worth NZ$975,000. House prices in the city rose 16.1% in the year to June and more than 50% over the last three years, during a period of low rises in wages and salaries.

Insufficient new construction over the last decade and a half, tax breaks for property investors, record low interest rates and speculation have all been cited as contributing to soaring prices in Auckland.

Last year, the government introduced capital gains tax on properties sold within two years of purchase, and in July it launched a NZ$1 billion fund to boost infrastructure for new housing developments. Also in July, the Reserve Bank introduced tighter restrictions on lending to property investors, including a 40% deposit requirement for almost all investors.

In June, New Zealand's main four commercial banks stopped mortgage lending to foreign buyers reliant on foreign income in a move they said was aimed at reducing risk.

Nationwide, house prices rose 13.5% over the past year, with popular tourist destination Queenstown up 25% and the North Island city of Hamilton 29% higher as the Auckland boom spread to other centers.

Tony Alexander, chief economist at Bank of New Zealand, said the housing price boom was likely to flatten between the end of 2017 and the middle of 2018 in response to the end of falls in interest rates, a rising supply of new houses and tighter credit for housing investors.

The property market is unlikely to turn around significantly before next year's election and immigration will be a "hot-button issue," Immigration Minister Michael Woodhouse said recently. He said the cabinet is reviewing annual immigration numbers, but added, "I don't think it will change materially."

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