politics

New Zealand Goes Cool on Migrants Just When It Needs Them Most

  • Ardern’s investment plans expose shortage of skilled workers
  • Immigration blamed for housing boom and low wage growth

Park Hyatt hotel under construction in Auckland.

Photographer: Brendon O’Hagan/Bloomberg

On the waterfront of New Zealand’s largest city, a Chinese developer is building a five-star luxury hotel aimed at wealthy tourists. One hitch: there’s not enough local workers to finish it.

To help complete Auckland’s NZ$200 million ($138 million) Park Hyatt hotel on time, Beijing-based Fu Wah International Group has been forced to fly out 138 carpet layers, painters and carpenters from China. The need for foreign labor means the government may struggle to reduce immigration as much as it pledged when it rode to power seven months ago.

Prime Minister Jacinda Ardern’s coalition wants to tighten visa controls and has said net arrivals could plunge by as much as 30,000 a year from 67,000 now. While that may be politically popular in a nation where immigration has been blamed for surging house prices, low wage growth and traffic congestion, the government needs foreign workers to carry out a NZ$42 billion plan to build new homes and transport infrastructure over the next five years.

“It’s not just pure demand, but scarcity of talent and expertise to deliver the work,” said Hamish Price, an Auckland-based recruiter who helps coordinate a building industry program to attract global workers. “Some of that talent has not been developed in New Zealand and needs to be brought in from overseas.”

If immigration levels hold up, that has implications for the economy that policy makers will need to grapple with. Higher-than-expected arrivals could push up house prices, consumption and residential investment, the Treasury said in this month’s budget when flagging risk scenarios. That may result in stronger inflation and faster interest-rate hikes.

Sticky Immigration

RBNZ has recently over-estimated pace of decline

Source: Reserve Bank of NZ

Net working-age immigration

There’s no shortage of jobs for overseas workers. In Auckland, plans include underground trains and light rail to the airport, while schools, hospitals, new roads and stadiums are to be built elsewhere in the country. Projects such as light rail haven’t been undertaken before, requiring foreign skills.

“When you look at all the infrastructure spend, the long-term type things being committed to in Auckland and elsewhere, it’s going to be a labor-intensive outfit for the next 10-plus years,” Reserve Bank Governor Adrian Orr said in an interview earlier this month.

Island Haven

New Zealand’s population has been growing at the fastest pace since the 1960s and is projected to exceed 5 million by 2020 from an estimated 4.8 million now. It added more than a quarter of a million net migrants in the four years through March. The country’s relative isolation in the South Pacific and almost a decade of continuous growth mean its seen as a haven by some, both economically and in terms of security.

But the rising population has contributed to a surge in house prices, up 60 percent the past five years, due to a shortage of new properties. And while the arrivals have boosted economic growth, they haven’t generated as much inflation pressure as expected -- even as the jobless rate falls to a nine-year low -- with the big jump in labor supply keeping wages growth low.

“The vast bulk of the immigration that has gone on has been younger, and education-driven in recent times,” Orr said. “For that number of people we haven’t seen anywhere near the demand impulse we would have thought.”

Crowded House

Treasury revises net immigration forecast, but is it by enough?

Source: NZ Treasury, Sense Partners

The government has said it wants to curb arrivals of students and unskilled foreigners while ensuring businesses get the skilled workers they need, but is yet to release policy details. The Treasury this month raised its forecast for annual net immigration, saying the nation’s economic appeal suggests arrivals won’t decline as fast as previously expected.

Wellington-based economic consultants Sense Partners, which has worked with the Treasury Department on immigration projections, says Kiwis aren’t leaving at the same pace they used to because other regions, particularly Australia, aren’t as enticing.

At the same time the pool of people globally with the income and means to come to New Zealand is growing, and the South Pacific nation offers an increasingly attractive lifestyle, said Kirdan Lees, a partner at Sense. He forecasts net immigration will drop to about 45,000 by mid-2022.

“Immigration remains important to meet labor shortages across a range of industries,” Sharon Zollner, chief economist at ANZ Bank New Zealand, said in a note this month. “If migration were to be reduced significantly, many businesses would find the operating environment more difficult.”

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