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Where will migration take the housing market?

Tags: Residential Residential Views

A key driver of growth in house prices, inward migration is back on the rise towards previous highs. What will the inflow of people mean for the market?


Experts point to migration as one of the major drivers behind past upturns in in our housing market. After a relative slowdown over the past 18 months, latest estimates from Statistics New Zealand (Stats NZ) suggest net inward migration is again climbing towards previous highs.

Its provisional estimate points to a net migration gain of 56,137 people in the year to March – up nearly 11 percent on the 50,628 net gain over the previous year.

The new figures coincide with Stats NZ introducing a new method of calculating who is coming and going, and they admit that “revisions may be significant”. Their estimate of net migration last September was eventually revised up from 45,300 to 52,200.

In their Property Focus report, ANZ economists echo this caution over the data. But regardless of revisions, their prediction of the general trend stands: “the net migration cycle has turned a corner and annual inflows are trending higher”.

As they underline in their report, “migration flows are one of the major drivers of housing-market cycles”. So what will a lift in migrant numbers mean for property prices?

According to CoreLogic, Auckland house values have fallen by 1.5 percent over the past year, while nationally the annual rate of growth slowed to 2.6 percent. But given that the Reserve Bank has cut the Official Cash Rate to a record low, the proposed capital gains tax is off the agenda and banks are cutting their lending rates, will house prices follow the same upward trajectory as migration?

“If we look out to the next couple of years, we’re likely to see some resurgence in house price inflation and that’s likely to be seen in many parts of the country, including Auckland, where the housing market is still tight,” says Satish Ranchhod, a senior economist at Westpac.

“On the migration figures themselves, the latest figures are probably overstating how strong population growth is. While migration is still at firm levels, over the next couple of years it’s going to trend down.

“But that’s trending down from a high level, and there’s still a large number of people coming into the country.

“Put that together with the low cash rate, the downward pressure we’re seeing on mortgage rates, and also the boost of confidence we’re seeing now that the capital gains tax is off the table – it’s going to provide a boost to the housing market.”

Despite many migrants being attracted to our biggest city, Ranchhod predicts Auckland will continue to lag behind the rest of the country in terms of house-price inflation.

“In Auckland, the softening we’ve seen is likely to be arrested and we could see some pick up, but it’s not likely to be as large as in other parts of the country,” he says. “But for those regions outside of Auckland that have had solid gains recently, we’ll see continued growth.

“Wellington is being boosted by the strength in the public sector, and in other parts of the country, like the South Island and in central parts of the North Island, we’re seeing stronger population growth.

“We’ve got low interest rates, plus we’re getting a boost from the firmness in export income. Put that together and it should lead to house-price growth over the coming year.”

There’s no doubt that New Zealand is growing. The population is predicted to hit 5 million next Christmas – largely driven by migration – and all those people will need somewhere to live, putting pressure on existing and planned housing supply.

Add to this low interest rates, and you don’t need a crystal ball to foresee that as the number of people calling New Zealand home continues to rise, so too, over time, will house prices in our most desirable locations.

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