By Leith van Onselen

The New Zealand Treasury has released a new research paper questioning the merits of high immigration, and recommending a reduced immigration intake in the event that the economy is unable to adequately cope with population pressures:

Reviewing the literature, the balance of evidence suggests that while past immigration has, at times, had significant net benefits, over the past couple of decades the positive effects of immigration on per capita growth, productivity, fiscal balance and mitigating population ageing are likely to have been modest. There is also some evidence that immigration, together with other forms of population growth, has exacerbated pressures on New Zealand’s insufficiently-responsive housing market. Meeting the infrastructure needs of immigrants in an economy with a quite modest rate of national saving may also have diverted resources from productive tradable activities, with negative macroeconomic impacts. Therefore from a macroeconomic perspective, a least regrets approach suggests that immigration policy should be more closely tailored to the economy’s ability to adjust to population increase. At a minimum, this emphasises the importance of improving the economy’s ability to respond to population increase. If this cannot be achieved, there may be merit in considering a reduced immigration target as a tool for easing macroeconomic pressures.

The New Zealand Treasury’s findings are supported by a 2011 report by New Zealand’s Savings Working Group, which also supported the notion that high levels of immigration tend to put upward pressure on inflation and interest rates, which can crowd-out productive sectors of the economy:

A country with a rapidly growing population needs to devote resources to building more roads, schools, shops, houses, factories and so on than a country with a low rate of population growth. In a country with a relatively low national savings rate, rapid population growth will put sustained upward pressure on real interest rates and, in turn, the real exchange rate, making it harder to achieve the per capita income gains that people (and the government) aspire to… Further, given the tight constraints applied to the supply of land for housing, less immigration might also have left New Zealand less exposed to the damaging house price booms experienced in the 1990s and the last decade.

As argued many times on this blog, a big negative of high rates of immigration is that it places increasing pressure on the pre-existing (already strained) stock of infrastructure and housing, reducing productivity and living standards unless costly new investments are made.

As explained in a 2011 speech by the Reserve Bank of Australia’s Phil Lowe (summarised here), rapid population growth (immigration) since the mid-2000s has placed upward pressure on rents, as well as caused a big surge in utilities prices as the capacity of the system struggled to keep pace with the growing demand, requiring costly new investments.

In a similar vein, modelling by the Productivity Commission has found that immigration is neither beneficial for the economy or living standards, nor can it sustainably alleviate the impacts of an ageing population.

Any objective examination of the facts suggests that the case for a high level of immigration is anything but clear-cut and those advocating a strong migration program need to justify their position.

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