No, neither house prices nor immigration are high because we’re prosperous

 

A STUDY OF AMERICAN mobility patterns across this decade’s Great Recession has a lot to say about housing prices and immigration in Auckland – puncturing in particular one of the many myths peddled about prices by this National Government

You will have heard many ministers talking about the explosion in house prices being one of those “good problems” to have, that it’s some kind of reflection on NZ’s prosperity and good fortune – the “something special” they “felt” we were “on the cusp of” last election. A few of the National Party’s more moronic bloggers regularly echo the theme, crowing even today about home-owners “cleaning up” as “average” house prices in NZ”s biggest city head inexorably towards the million-dollar mark.

Never mind that the phony bubble-wealth is consuming real capital.

And never mind that the “narrative” is flat-out bullshit – as this new US report helps to show.

WHAT IT REALLY EXAMINES is all the various explanations for the relative immobility of today’s Americans, who unlike their forebears have become whining stay-at-homes and fearful stick-in-the-muds.

If Horace Greeley were alive today, his advice might be something more like,“Move back home, young man.” Americans today are strangely averse to change. They are less likely to switch jobs, or move between states, or create new companies than they were 30 years ago. In economist-speak, "the U.S. labour market has experienced marked declines in fluidity along a variety of dimensions." In English: America has lost its mojo. Manifest Destiny has yielded to manifest dormancy.

How has America lost its moving mojo? The possible causes are explored and rejected one by one in The Atlantic, concluding that all the usual explanations – the internet, two working parents etc. – are unsound.

The real reason, they say, is high and rising housing prices.

Sounding familiar?

Turns out that people now find it hard to seek prosperity in richer places because of their high housing prices, so when they do move now it’s predominantly to places that are poorer rather than richer.

If labour markets were operating efficiently, workers would be moving to where their work was most valuable. Instead, the opposite is happening. People aren’t moving toward productivity. They’re moving toward cheap housing.
    Can housing costs be blamed for the decline in geographic mobility? Yes. Yes, they can.
    Between 1880 and 1980, people generally moved from poor states to rich states, seeking the best jobs. “The creation of a single automobile plant—Ford’s River Rouge complex, completed in 1928—boosted Michigan’s population by creating more than 100,000 workers,” as Tim Noah reported. Migration promoted geographical equality.
    But today, not only are families moving less, but also they’re moving in the opposite direction, from rich areas to poorer areas, mainly because of housing costs.
    Whereas the middle class used to move toward productivity and jobs, like the River Rouge complex, they’re now barricaded from the most productive places by housing costs. So they’re moving toward cheap housing, instead. Tighter land-use regulations in rich metros pushed up housing values, according to theHarvard economists Peter Ganong and Daniel Shoag. Expensive housing in productive metros priced out the middle class and created “segregation along economic dimensions, with limited access for most workers to America’s most productive cities,” they wrote.
    In the larger picture, high migration rates used to be a force for national equality. Now, low migration rates, and the new direction of migration from rich to poorer states, are a force for geographical inequality.

So the story is: people are generally staying put more because new opportunities elsewhere can’t be outweighed by the new places’ higher price of housing. And when they do move it’s generally to poorer places.

The story is precisely the same in New Zealand.

The story of New Zealand immigration is that we’re at record highs – with nearly seven times the number of immigrants normally migrating coming here just last year. That’s the “story of success” the National Party’s cheerleaders are telling.

Trouble is, it’s bullshit.

“Our migration flows are not driven by migrants,” confirms the BNZ’s Tony Alexander (confirming too that they are not driving higher house prices). “They are you and I leaving or coming back, workers specifically sought by businesses, students, and a few Aussies.”¹  Only a very slim percentage at all of these numbers are new migrants, and many of those in recent years (14,000) are actually students.

So the largest contribution to net inward migration is actually many fewer NZers leaving (mostly due to fewer opportunities in Australia’s richer destinations), and many more of us coming  back: 37,000 in total making those two choices.

And in relation to the places from which they’re coming back, even New Zealand housing looks cheap. Because our incomes are so low – NZ being Australia’s poorest cousin, poorer even than Tasmania – the income-to-house-price ratio for our high-priced houses (an eye-watering 9.14 in Auckland) looks like nothing at all to someone who until recently was earning a sizeable (to us) Sydney salary. Which is one reason they’re returning.

So the story with Americans losing their mojo is similar to our own.

And tt’s not because the National Government has placed us on “the cusp of something special.” That story was always just eyewash.

It’s because Australasia’s high house prices are helping NZers lose their moving mojo.

NOTES:

1. Tony Alexander: “Let’s have a look at what has caused the 66,000 turnaround in the net flow since early-2013. The gross inflow back then was 86,000 now it is 124,000. Thus 38,000 or 58% of the change is due to more people coming in. The other 42% or 28,000 is fewer people leaving New Zealand. Of the extra 38,000 people coming in 9,000 are Kiwis and Aussies exercising their legal right to hop between our two countries. Another 14,000 are extra students coming to study here and contribute to the $3bn+ in exports we gain annually from the export education sector. That leaves a true foreigner migration increase from levels of three years ago of just 15,000. Of that 13,000 extra people have come in on work visas to undertake tasks such as rebuilding Christchurch and to supply skills which we are lacking sufficient depth of in New Zealand. Their presence has occurred over a time when the unemployment rate has fallen from 6.3% to 5.3% and 174,000 net extra jobs have been created.”

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