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Anti-migration populism hurts not helps the economy

nbr230514Published in The National Business Review (Auckland), 23 May 2014 (PDF)

Budget day last week was dominated by the usual focus on the return to surplus, some new spending pledges and discussions of potential future tax cuts. Soon afterward, however, commentators and politicians discovered the Treasury papers contained some political dynamite outside the core of fiscal policy: a projected rise in net migration figures.

After a net migration intake of only 2000 people in the 2013 calendar year, the budget’s forecasts for 2014 and 2015 are net migration gains of 31,000 and 35,000 respectively before returning to more moderate levels. By 2016, net migration is forecast to fall to 17,000 and decline further to just 12,000 a year in 2017 and 2018.

Once the opposition noticed these figures, Labour leader David Cunliffe promised to do something about them. In order to save the housing market from overheating, and to reduce pressure on public services, his party would slash migration to somewhere between 5000 and 15,000 a year, he said on TV3’s The Nation.

For a country with such a long history as a migration destination, it is astonishing just how quickly new migration can be portrayed as negative or even a threat. As the Treasury papers show, it is neither.

On the contrary, the projected uplift in migration figures comes just at the right time for the New Zealand economy and it provides ample economic opportunities. There are two caveats, however: New Zealand needs to attract the migrants it needs and it needs to lift its game to accommodate these migrants.

To put the Treasury’s forecasts into perspective, it is worth looking at long-term population trends. The Treasury predicts the population will increase by a quarter of a million people, from 4.46 million in 2013 to 4.72 million in 2018. That is an increase of just over a quarter million, which may sound substantial but it is important to realise two things about these numbers.

First, more than half of the increase (57%) is natural (that is, more births than deaths) and only 43% is due to net migration. Second, by New Zealand’s historical standards, a population growth of 1.1% a year is not high. In 85 out of the 128 years where data has been collected, population growth rate was above this level.

The population growth forecast should be welcomed rather than feared. It comes at a time for the New Zealand economy when, figuratively speaking, we need all hands on deck.

Yes, the population number will rise (as will the labour force) but the total number of people in employment rises even faster. This means the unemployment rate is forecast to go down to just 4.4% by 2018, even despite a slight increase in the labour market participation rate from 67.9% last year to 69.0%.

To put it simply, there is no shortage of jobs for new migrants. They are entering a labour market, which is edging toward full employment, with labour shortages reported in parts of the country and across many industries.

Without migration, pressure on wages and therefore inflationary pressures would increase. There can be no doubt new migrants will make a positive contribution to the development of the domestic economy. They will add to its productive capacity and also strengthen demand.

It certainly would not be in New Zealand’s interest to curb migration. Our ability to fine-tune migration figures is limited since a large part of the net migration intake consists of returning Kiwis. For example, people who once left for Australia and now return home as the Australian economy no longer looks that promising.

These people have a right to reside in New Zealand and cannot simply be turned back at the airport.

Of course, Mr Cunliffe has a point when he says migrants add to housing demand and thus contribute the rising house prices. He draws the wrong conclusion from this truism, however.

New Zealand has a housing shortage already. It is a housing crisis that desperately needs tackling – with or without new migrants. We only have ourselves to blame for this housing shortage, not new migrants.

The number of new houses built dropped from a record 34,400 in 1974 to a little over 15,000 today. This number is woefully low. On such a poor level of house building, we will not be able to replace derelict housing stock, accommodate the trend toward smaller households in an ageing society and deal with a growing population – keeping in mind that 57% of this growth is natural.

To be absolutely clear: New Zealand has a housing supply crisis, not a demand problem.

If New Zealand politicians were serious about the housing affordability crisis, they would focus their energies on unlocking the planning system, finding better ways of delivering infrastructure and making sure the houses get built that the country needs.

But that would mean admitting political failures of the past; scapegoating migrants for high house prices is much more convenient. It is disingenuous regardless.

Politicians should face it: New Zealand is a migration destination – and it is all the better for it. Because we are such an attractive destination for potential migrants, we can afford to select those we need most.

We can strategically define the skills we need to build our economy. But we should also ensure those who come here also subscribe to New Zealand values – that they speak our language, respect our laws and become part of the community.

I say all this as a migrant myself – and as a father of a Kiwi son who cares about this country and wants to make it better. I was once part of New Zealand’s net migration statistic.

Maybe I pushed up house prices at the margin when I arrived. But I am doing my best to make this country a better place. Even if it means defending the positive impacts of migration against populist responses in an election year.

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