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There is now widespread acceptance that immigration is driving up house prices. The question is why it took so long to work that out?
We were told that house prices were a supply side problem, which meant that government should make more land available and the problem would go away. But this ignored the obvious – markets don't just consist of supply, they also consist of demand.
The advisers were ignoring half of the market. Of course, property developers and immigration consultants did well out of this view, but did the average Kiwi? The answer is no, and especially not new home buyers.
For many years, we have been told that high levels of immigration are needed to help the economy grow. This argument states that with a bigger population, manufacturing industries will expand, reduce their costs and become more competitive on the international market.
After 20 years of high migration levels, we can now say this policy has failed. Our manufacturing has not grown. In fact, the opposite has happened with many companies closing down or going offshore.
One study showed that between June 2004 and June 2010, manufacturing declined from $4858 million to $4057 million in 1995/96 prices. Another paper noted that between 2003 and 2009 manufacturing’s contribution to GDP stood still.
The myth that a big population will result in more economic growth has led some commentators to guess what the optimum population size is for New Zealand. These commentators need to visit India where they will discover that large populations do not drive wealth.
It is the skills in a society that create wealth. It is time to forget population growth and look at the skills that New Zealanders possess.
Myths about immigration
There are a number of myths associated with immigration. One of the most common is that migrants are more likely to be entrepreneurial. However, the former Department of Labour’s own figures show that migrants have a poor rate of entrepreneurship.
The reasons for this is the migrants do not understand the New Zealand business environment. They frequently bring business models based on cheap labour and large markets. Those models do not work in New Zealand, so the entrepreneur ends up, for example, buying a pre-existing café, which results in no new economic activity.
Another myth is that immigration helps the economy by boosting trade. This is not completely inaccurate as immigration does help trade. The problem is it helps imports a lot more than exports, as migrants want to consume the products they used to get at home.
One study, for example, found that if New Zealand receives 10% more migrants from a particular country, exports to that country grow by 0.6%. However, it also found that New Zealand’s imports from that country grow much more, by 1.9%. This has a negative effect on NZ's balance of payments, and is the last thing we need.
There is a huge misperception that our immigration policy is letting people with the skills we need into the country. But a closer examination reveals a very different picture. Recent figures show that only 44% of residence approvals came under the skilled/business category.
These should be our most productive migrants but only 71.8% of them are earning wages or salaries. Some of them have very low skill levels, and have included occupations like florists and shop assistants. Such people should never be allowed in while unemployment persists.
Potential migrants are assessed under a points system for their skills and education, among other categories, and given points for each category. If a migrant's points add up to 140 or more, the migrant is invited to apply for residence and will most likely be accepted into the country.
If the immigration service only accepted migrants with 140 points or above, the policy would be more successful. But sadly, if not enough people with 140-plus points apply, the response is to lower the points threshold; that is, the quality of migrant is reduced in order to maintain quantity.
I recall a student of mine who entered the country with only 105 points. She had no skills of value to New Zealand. Furthermore, she only obtained 105 points by working for a New Zealand-based Chinese employer as a retail shop assistant selling vegetables for below the minimum wage. In return, the employer wrote a letter saying the student’s skills were needed by his company. This is a common way of entering the country.
A large number of sales people are being granted residence despite the low training required. Some are given responsibility for part of a shop and are called sales managers. These jobs could be done by New Zealanders.
Substitute for training
Many New Zealand employers are using immigration as a substitute for staff training. They find it easier to employ a migrant under current policy than to train an unemployed local.
This attitude could be seen in a recent item on TV3 News in which a restaurant manager opposed government’s attempts to cut back on immigration: “I think their goal is to reduce the unemployment level. That’s a worthy goal," he said. "[But] does that become the restaurant industries responsibility?”
Some employers do not see it as their responsibility to provide jobs to New Zealanders if workers can be sourced more easily from off-shore. When any skill deficiencies are noted, Immigration New Zealand allows more migrants into the country when government should instead be looking at why insufficient numbers of New Zealanders are being trained in these skills.
This is an area where the government can do much to improve the efficiency of the labour market. There is a huge mismatch between skills supplied and skills required. There are a number of reasons for this. In past years, the Department of Labour and the Ministry of Social Development had been using different systems for classifying jobs. The consequence was migrants in professions where we had unemployment were accepted into the country.
One of the reasons for the poor match between the supply of and demand for skills is that New Zealanders are being trained in the wrong areas. The labour market is complex and many school-leavers have no sense of reality. Our young workers can spend three years studying to acquire skills they will never use.
Not only is this a waste of training, but it can be soul-destroying for young Kiwis who have worked so hard for their qualifications. The Ministry of Business, Innovation and Employment needs to be more proactive in providing information and using it to make the labour market more efficient.
Time to face facts
For 20 years, New Zealand has maintained high levels of immigration in the hope it would generate economic growth. We can now conclude, thanks to a wealth of evidence, that the policy has failed. We were sold a lemon. Only the property developers can smile, while the rest of country must shoulder the cost of new infrastructure to accommodate the growing population.
There have been no new industries. The growth we have enjoyed has been driven by the same industries that drove it in the past; tourism and agriculture, especially dairy.
There is no doubt that immigration is necessary to provide some skills – construction skills for the Christchurch rebuild, for example. But Auckland is the prime location where migrants settle and it's incurring a lot of infrastructural costs as a result, with little economic benefit.
To ensure the benefits of economic growth are enjoyed by all New Zealanders, the next government needs to look at dramatically reducing migration numbers.
It is time to overhaul immigration policy and the way we view the labour market. An efficient domestic labour market, with skills training that accurately addresses the needs of employers, is the key to an affluent society. It is the way in which we can reduce unemployment, provide training and careers for our young, and reduce the pressure on house prices.
Greg Clydesdale is a senior lecturer in commerce at Lincoln University
The views expressed in this article do not necessarily reflect the views of Lincoln University
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