The net migration boom has seen NZ grow by the population of a decent-sized city, with 164,000 overseas citizens coming to the country long term and 45,000 New Zealand citizens leaving. Stats NZ estimates that about half of the departures were to Australia.

Westpac economist Darren Gibbs says migration figures will have several rounds of revisions over time, with the latest four months typically seeing the biggest changes.

Monthly arrivals stood at about 21,000 in Sept, down from a peak of more than 26,000 in April but still about 8,500 more than in Sept last year.

Most immigrants are from India and, to a lesser extent, China and the Philippines. About a third arrived on a work visa, and about a quarter on a visitor visa.

Gibbs says if the recent pattern of revisions continues, the annual inflow is likely to rise further for a few months yet – perhaps into the 125,000-130,000 range – even if monthly inflow numbers print close to year-earlier levels. Given the increasing size of this flow, understanding the economic impact has become more important than ever.

“To date the huge migrant inflow seems to be helping to alleviate tightness in the labour market while also underpinning a moderate lift in house sales, prices and especially rents.”

He says the broader impact on domestic demand appears modest – or at least insufficient to offset the drop in spending – as reflected in a weak consumer spending report for Oct.

“How these competing influences on the economy and inflation continue to play out will have a bearing on the required level of interest rates over the year ahead.”

Historically migrants from India, China and the Philippines have earned slightly below average wages in New Zealand. If that remains the case, it implies more upwards pressure on lower-priced homes and rentals relative to those at the top end of the market.

Many migrants have moved to Auckland. As the country’s biggest city, this has helped spur economic activity despite nationwide gloominess, while putting upwards pressure on house prices, ANZ’s latest Property Focus says.

Rapid housing construction in Auckland over recent years has not kept pace with the volumes of new arrivals, making the evolving demand-supply balance a tailwind for prices once more.

ANZ chief economist Sharon Zollner expects the added pressure in the Auckland housing market to spillover to neighbouring regions such as the Waikato and Bay of Plenty as relative prices adjust.

As well as upward pressure on house pricing, rents are likely to see sustained increases from greater population growth. However, Zollner says at some stage the cooling labour market will reduce tenants’ wage growth, meaning they will be less able to pay higher rents. This will limit landlords’ ability to continue to raise rents.

Higher rents also directly feed through to Consumers Price Inflation (CPI), boosting the non-tradable inflation component on which the RBNZ focuses.

High migration won’t just increase the CPI via rents; it will also result in higher demand and potentially upwards pricing pressure on everything. “The extent to which the spike in immigration feeds through into higher prices remains to be seen – and in practice will be difficult to estimate precisely – but it is an upside risk to inflation and could contribute to mortgage rates being higher for longer,” Zollner says.

“On the other hand, most migrants are moving to New Zealand to work, and there is no question that a huge boost in labour supply has opened slack in the labour market, allowing higher use of existing capital. This is a positive supply shock that boosts GDP and reduces inflation pressure by dampening wage pressures.”

Given the unprecedented amount of extra people who have recently arrived in the country and our inability to wish new houses into existence, Zollner says there is a clear risk of rents, house prices, inflation and mortgage rates rising more than we or the RBNZ are currently expecting.

On short-term visitor arrivals, the number of foreign tourists arriving continued to rise in Sept. With the pace of recovery flattening somewhat in recent months, arrivals remained around 14% lower than the pre-pandemic level in September 2019. However, with airline capacity continuing to increase, we expect that this gap will continue to close over the coming year.