The national median residential rent has lifted $40 a week from $540 to $580 over a year from the third quarter of last year, Tenancy Services bond data show. That is an increase of 7.4%

ANZ chief economist Sharon Zollner says given the unprecedented number of extra people who have recently arrived and the country’s inability to wish new houses into existence, there is a clear risk migration will cause rents, house prices, inflation and mortgage rates to rise more than the bank or the RBNZ are expecting.

The ANZ’s latest Property Focus report says higher rents directly feed through to Consumers Price Inflation (CPI), boosting the non-tradable inflation component on which the RBNZ focuses.

Recent data from Trade Me show Auckland rents are up 12% since last year with a median weekly rent of $670, which is creating a significant strain when listings in September were down 26%, while enquiries were up 28%.

High migration won’t just increase the CPI via rents; it will also result in higher demand and potentially upwards pricing pressure on everything a new kiwi might need after they’ve arrived, such as durable goods like washing machines, furniture and televisions.

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.

Most of the major banks are now expecting inflation and interest rates to stay high next year and the RBNZ only starts cutting the OCR in 2025. Half of the banks’ residential lending mortgages are still to price to higher interest rates – most next year.  

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

So will the net migration boom worsen the RBNZ’s inflation problem or solve it overall?

Zollner says there is no clear answer to that question at this point, but in the August Monetary Policy Statement (MPS), the RBNZ outlined its view that the migration surge is likely to have a “low, but positive” impact on inflation.

It noted four differences compared to pre-pandemic migration trends that they are paying attention to when assessing the potential effects of migration on inflation (and therefore the OCR and ultimately mortgage rates):

Country of origin. This migration wave is mainly from India, China and the Philippines, countries whose immigrants have historically put less upwards pressure on house prices.

Age. This migration wave is concentrated in people 30-49, a demographic that spends lots and puts large upward pressure on inflation.

Occupation. This migration wave has a higher share of technicians and trade workers than normal. In theory that gives the economy more capacity to build homes, potentially increasing housing supply, moderating house price growth. Zollner says that’s relevant only if the maths on new builds stacks up, and at the moment that’s challenging.

Arrivals and departures. Net migration is being driven by high arrivals, rather than low departures. Historically arrivals have had a bigger effect on house prices and inflation than departures.

Weighing it all up, Zollner says the bank’s forecasts also assume the additional labour supply and demand for housing and other goods will broadly balance out in terms of their inflationary effects, leaving only a small net positive inflation impact.

“However, around that assumption we see the risks as tilted towards the net inflation impact being bigger than a “low, but positive” impact, at least in the short term.”

She says the assumption that the net effect will not be particularly inflationary is entirely defensible, but it is just an assumption and the RBNZ will have to react to the data as it lands.