News & Research

Could lower migration rates hit provincial property values?

27 June 2018

NZ’s net migration inflows continue to drop. Although the level is still high, further migration falls will result in a softer residential property market than would otherwise have been the case and the provinces may be those to feel the brunt of it.

NZ’s net migration inflows continue to drop. Although the level is still high, further migration falls will result in a softer residential property market than would otherwise have been the case and the provinces may be those to feel the brunt of it.

CoreLogic research analyst Kelvin Davidson writes:

The latest migration figures from Statistics NZ revealed a further weakening in the net inflows of people to the country with the annual total 66,243 in the year to May. That was down by 5,721 from a year earlier and the lowest figure since January 2016 (65,911). As the first chart shows, arrivals to NZ are broadly holding their ground (measured on a trend basis), but it’s rising departures that are dragging down the net figure.

For some time now, we have been emphasising that the net balance with Australia is a key component to watch. This is because it is often the deciding factor for NZ’s overall migration balance, and when the trans-Tasman flows change they can tend to move quickly and deeply. Although as the second chart shows we had a false alarm about a year ago when the net flows to Australia dipped negative (but then recovered a bit), it’s important to note that population loss across the ditch has recently begun to pick up a little again.

So then the key question becomes, ‘will the net outflows to Australia continue?’ On one hand, NZ still has an unemployment rate about 1%-point lower than Australia, which will tend to keep existing residents here and also potentially attract new residents/migrants. But as the third chart shows, Australia’s economy has picked up a little pace lately, while NZ has slowed. This will help to create more jobs in Australia and, given higher wage rates across the Tasman, it’s not hard to imagine Australia becoming more attractive to NZ residents (whether they’re citizens or temporary visa holders) over the coming months. In other words, it wouldn’t be a surprise to see net outflows to Australia increase.

In terms of NZ’s property market outlook then, although net migration is still at a high level, the slowdown from that high base will still dampen demand and price pressures to some extent. This is not to say that prices are suddenly about to drop sharply. After all, we’ve still got shortages of supply that have accumulated over the past few years and not enough builders to put up the houses we need now, especially in Auckland. But slower migration will nevertheless result in less price growth than would otherwise have been the case.

We’ve also taken a quick look at the regional composition of overseas migration into NZ, and it’s interesting that provincial centres* seem to suffer disproportionate outflows when overall net migration losses from NZ are high. For example, in 2011/12, the net outflow from the provincial centres was the same as for NZ in total. The fourth chart shows that the provinces also saw relatively large migration outflows in the late 1990s/early 2000s.

Put another way, these figures suggest that when Australia (for example) is looking attractive, a lot of the population loss in NZ comes from the provinces. So this highlights to us that recent strong property value growth in places such as Napier could come to a halt pretty quickly if and when NZ’s overall migration flows ease further.

*Combined total for Whangarei, Rotorua, Gisborne, Hastings, Napier, New Plymouth, Whanganui, Palmerston North, Kapiti Coast, Nelson, Queenstown-Lakes, and Invercargill.

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