Infrastructure

If migration stops, should we stop building?

Our population has outgrown its infrastructure for a decade and some see a Covid-19 building spree as a chance to catch up, but others worry about over-building just as migration stalls

New Zealand's population hit five million this week as Kiwis returned home in their thousands, adding to massive growth from migration in the last decade.

Our population growth has been the fastest in the OECD and the only comparable period is the 1870s, when British migrant workers flooded into the country, lifting the population from around 240,000 to 400,000 over the decade.

The latest population boom was similarly driven by new arrivals, but wasn't accompanied by the new narrow-gauge railway lines and heavy Government borrowing that came with the last.

A yawning gap between infrastructure investment and population growth emerged. Civil construction investment - the kind needed to build roads and other forms of infrastructure - has consistently been outstripped by population growth since 2014.

Source: Brad Olsen/Infometrics

The under-investment led to gridlocked cities, high land prices and large wealth gaps. Those with housing assets experienced soaring capital gains while those without suffered steep rent hikes.

Successive governments kept the economy humming with migrant labour, but fended off calls to stem the flow by not regularising the immigration status of hundreds of thousands of people.

A queue of migrants "in limbo" formed who could be easily replaced if they complained about the wait. Investment in infrastructure was hampered by self-imposed Budget Responsibility Rules and a local Government funding system saw councillors who wanted to invest more voted out because they borrowed too much or raised rates.

AUT Emeritus Professor Richard Bedford said there was no easy way out under the old system, but there was now.

"One thing that the Covid-19 crisis allows the Government to do - in a way that it would find extremely difficult to do in any other context - is to really look very, very hard at immigration policy settings when it decides to open the border"

Hello boomers

National Institute of Demographic and Economic Analysis Director Francis Collins said the tide had turned against immigration even before the pandemic. Covid-19 would likely permanently dim the global appetite for migration.

"It's simply inconceivable to see how lots of people are going to move to a place like New Zealand."

Markets like international education might shrink permanently with students less likely to risk the complications of overseas travel. The same for people who once decided to go on working holidays.

Much of New Zealand's population boom in recent years came from people shifting over from temporary visas - such as a student visa - to permanent residency status.

"It's simply inconceivable to see how lots of people are going to move to a place like New Zealand - which is planning to have border quarantines - to the extent that was happening five or ten years before that," Collins said.

"If that [a decrease in migration] happens then many of our predictions around ongoing growth from 5 million up to 6 million need to be revised back."

"I think we can expect that getting 6 million will take a lot longer than would have been anticipated."

Bedford said the 19th century was the last time migration played such a large role in the growth of our population.

For most of the 20th century immigration only made up 20 percent of population growth, but in the the last five years migration's contribution had risen to an "exceptional" 50 percent. 

"I don't expect that to continue. I don't think the New Zealand public or the Government or anybody wants the population to just keep growing incredibly rapidly."

Kiwi boomers may come back

Despite the major role migration once played there was no evidence population growth will completely reverse in a post-Covid world.

Older returning baby boomers may take the place of new migrants: the other side of a "massive" outflow of young New Zealanders during the 1970s.

"A lot of them stayed away and interestingly quite a lot of Kiwis who are living overseas now are exploring possibilities and options of coming home and that's evident in the statistics on returning New Zealanders," Bedford said.

"It reflects the fact that New Zealand actually is not a bad place to live. Especially if you've made money overseas."

"You can afford to buy a nice property in New Zealand. You've got assets that can support you. You're a citizen [so] you're entitled to everything in New Zealand."

Reversal of Trans-Tasman flows

Collins said the most likely group of New Zealanders who could return were 212,590 people who had migrated to Australia over the last 10 years, a substantial proportion of whom were aged 15-35*.

With Australia's economy likely to contract many would be out of work and Kiwis tended to return home during recessions across the ditch.

However, no hard-data existed on the number of older people further afield in Europe or North America who might also want to come back. 

Population data overall had been problematic even before the Covid-19 crisis hit, he said. The most fully processed information came from the 2013 census which took place before the large immigration inflows came through.

"It's actually not efficient to bring infrastructure forward because you've got a gold-plated service before the users are there to warrant that."

Our future growth trajectory had changed. Some regions could be in danger of experiencing population decline, but overall our country would continue to grow.  

Fertility could also drop as people put off having children while economic conditions worsened.

Bedford said the likely decline in international travel gave Government a political opportunity to turn off the immigration tap in a way it hadn't before. Both National and the Labour-NZ First coalition had run economies that were increasingly dependent on a temporary migrant workers. 

"The moment you start playing with your immigration policy settings in a normal, pre-Covid situation, you're likely to get accused of discriminating against particular groups or trying to pick certain types of groups that you want as migrants and other groups that you don't want."

University of Waikato Environmental planning professor Iain White and Infometrics economist Brad Olsen have differing views on arriving too late or getting there too early.

For Olsen, we are way behind on all types of infrastructure - roads, water, and transport. 

Gold plated infrastructure already?

White was more cautious. He asked: after Covid-19 would New Zealand want people to move around the country as regularly? Will employees get a new 'right to work from home' that would take the sting out of our transport infrastructure needs?

"It's actually not efficient to bring infrastructure forward because you've got a gold-plated service before the users are there to warrant that," White said.

"New Zealand [should] think about what it wants to be then pick and design the infrastructure that enables that to happen. Rather than just see infrastructure as separate from a vision for New Zealand."

Economist Brad Olsen thinks we'll need to build more houses no matter what happens to our population projections. Photo: Lynn Grieveson

Some infrastructure was overdue. White put investment in rail, cycleways and public transport in that category. Other parts of it were needed to accommodate future growth. Recently, infrastructure work had also been brought forward to generate jobs. 

Infrastructure for growth like water reservoirs had been planned on a 25-year timescale. Covid-19 would have changed that trajectory for a few years, but investments in things like that would still be needed, he said.

White said a move to people working from home meant other parts of transport investment, like roading, could be up for debate.

'Beware white elephants'

With population forecasts in flux the country could be left with "white elephants" like unneeded four-lane highways and convention centres. 

Olsen said we were behind on most types of infrastructure and the dangers of bringing things on line too soon were outweighed by the perils of not having enough.

"You've got to remember that a lot of our infrastructure gaps that we currently have [are there] because we haven't even equipped ourselves for the current population we've got," he said.

"We're still possibly five years below where we need to be."

KiwiBuild 2.0

Olsen said one category of infrastructure that would be needed regardless of where our population projections fell: housing.

And the economic conditions brought on by Covid-19 meant Government would have to take a leading role in providing it.

The construction market is already showing signs of winding down in response to the economic downturn. This week Fletcher Building announced it would cut 10 percent of its workforce on the back of a 30 percent drop in building consents. A similar contraction during the Global Financial Crisis was responsible for the undersupply of housing years later.

When economic conditions were uncertain builders and construction firms were less likely to take on new projects because they weren't sure what price they would get at the end of it, Olsen said. 

That was why Government intervention was needed, perhaps through a "KiwiBuild 2.0" scheme, he said. 

Things had changed since KiwiBuild famously flopped. The issue then was that the Government had competed for the same construction and land resources that the private sector had. It meant the scheme effectively added little extra to the market because those houses would have been built even if the state hadn't jumped in.

The plan might be worth revisiting now that the construction sector has a much better relationship with Government and is facing shrinking demand.

'8,000 homes still not nearly enough'

Olsen said even a recently announced plan for the Government to build 8000 homes would result in a gross undersupply of housing. 

The Government would need to build 9,400 houses in two years just so it could house the backlog from 2014/15. And that assumed the social housing register waitlist didn't increase in that time.

"If the private funding has dried up is there the ability for the Government to essentially do what KiwiBuild was always designed to and directly build homes itself?"

Failing that the Government could open up its chequebook and take on the financial risk of a large residential building boom. 

Collins said we had to learn the lesson from the past two decades and invest in providing a stable environment for people who came here. That meant matching arrivals to infrastructure and stable residency rights.

"[In the last decade] as the population grew, there wasn't a plan to invest more per person or plan to make sure that that population growth was taken care of," he said.

"Maybe Covid provides an opportunity to catch-up."

*This paragraph has been changed to reflect that a substantial proportion of this group were aged 15-35 rather than the entire group.

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