Doubts over key Budget statistic
By Richard Harman (author)
Doubts over one of the Budget’s key economic projections threaten to undermine the Government's response to the Auckland house price crisis.
It turns out that one of key Budget immigration forecasts are just an assumption which even Finance Minister Bill English is sceptical about.
In the Budget documents Treasury have estimated that net immigration will fall to 12,500 in 2019.
It is currently running at 68,000 a year.
Treasury's projection is important because immigration numbers influence expenditure on Government expenditure like health and new school buildings as well as being critically important in terms of forecasting the Auckland property market.
Were immigration to stall that dramatically in three years then demand in the Auckland housing market would drop equally dramatically.
Mr English concedes that could have a pretty big impact on the broader economy.
“You could imagine a combination of events three years out where dairy prices are still low, and the record migration numbers drop off, and Auckland house prices come down, and that would be a challenge for our growth," he told his party's regional conference in Wanaka a week ago.
He said that what was driving the immigration figures was New Zealanders returning home.
Net immigration from Australia has swung round from an out of 15,000 in 2014 to a modest inflow of 5,318 in the year to February 29, 2016.
It is the Australian figures that appear to be throwing out the Treasury projections.
In its December Economic and Fiscal Update Treasury projected that in June this year net immigration would already be slipping off its peak of 62,700 in February this year.
But that forecast was 7.5% out.
In fact, Statistics NZ recorded an annual net migration of 67,391 for the year ended February 29.
Mr English told delegates to his party's lower North Island conference in Palmerston North yesterday that immigration was currently underpinning growth.
“It’s a problem of success,” he said.
But he said that the Budget growth figures were based on migration dropping away pretty quickly.
Mr English was challenged by a delegate about the figure and when questioned later by POLITIK he said that most people would say the Treasury projection didn’t look realistic.
“You’d have to ask Treasury how they make those assumptions.
"They just assume it (net migration) will go back to the long run average because that’s what it usually does.”
The immigration figures are critical in the Government’s response to the Auckland housing crisis.
If immigration falls as Treasury suggests, then there would be less need to increase the supply of houses in Auckland.
That may well explain what some consider the Government's tardiness in dealing with Auckland housing.
And yesterday Mr English was once again referring to the forthcoming Urban Development National Policy Statement as a way forward over Auckland housing.
The statement is a way around the failure of the Government to get Parliamentary approval to change the Principles of the Resource Management Act to allow economic considerations to be taken into account.
It wants Councils to have to consider the opportunity costs of imposing building and design restrictions on housing it wants economic triggers to force Councils to start zoning extra land for housing.
“We think that it’s pretty important that the planning process takes account of the impact of the planning process on house construction costs or land prices," he said.
"The Reserve Bank has a set of tools to suppress demand, and this will be a tool aimed at increasing supply so it would reinforce what the Bank is doing.”
But the reality is that the Government is flying blind.
Because the immigration forecasts have proved to be so unreliable, it cannot with any certainty predict house demand even two or three years out.