Speaking to Waikato Chamber of Commerce members last week, Infometrics senior economist Brad Olsen once again returned on the topic of house prices and immigration. According to Olsen, while a collapse in net migration may cool down the Waikato housing market, prices in the region are unlikely to go stagnant.

And ‘collapse’ it is. According to Infometrics, compared to last year, monthly numbers went from an average of 6300 net migrants to just 630 – a 90 per cent drop.

The topic of immigration has always divided opinion, especially when it comes to the economy. And in New Zealand, a country where unemployment rates have remained fairly low for many years, the lion’s share of the debate has focused on rising house prices. But is immigration really to blame?

The property price conundrum, explained

Any property market, anywhere in the world, relies heavily on the law of supply and demand, with international immigration flows potentially exacerbating the latter. However, a 2019 working paper by Motu Economy and Public Policy Research found that – contrary to popular belief – immigration actually has little impact on house prices.

Here are some key findings:

• Net migration does create ‘significant fluctuations’ in housing demand; historically, periods of high net migration into New Zealand were also periods of high house price growth. More specifically, at a national level, a one per cent increase in population from migration is associated with a 12.6 per cent increase in property prices.
• What does ‘associated’ mean? Here comes the interesting part. According to the report, while it’s widely believed that immigration causes property prices to grow, the reality is, these two events are actually influenced by a third factor – how well the economy is doing. In other words, if the economy is performing well, immigration flows increase and property prices grow.
• To reach this conclusion, researchers looked locally as opposed to nationally. At a local level, the correlation between immigration and house prices appeared a lot weaker (a one percent increase in population was correlated with only a 0.2–0.5 percent increase in house prices). On the other hand, researchers found that returning Kiwis put more pressure on house prices than the same number of immigrants would. And so did increases in income levels, age composition, and qualification levels.
• So, why was the correlation stronger at a national level? As said before, a stronger economy may be to ‘blame’: “In this scenario, immigrants are more likely to come to New Zealand when the country’s economy is doing well and overall house prices are increasing.”