Why Everyone is Leaving New Zealand

This is New Zealand, genuinely one of the most beautiful countries in the world.

In addition to its picturesque landscapes, a lot of that beauty also comes down to the fact that it is extremely remote.

So much so that it's left off a lot of global maps and it's home to a relatively small population of just 5.3 million people.

These people enjoy a very high standard of living, good education, very stable government, good access to healthcare and a relatively egalitarian culture.

Now, while all of this may sound great on a tourism brochure, it has had some unintuitive consequences on the national economy, an economy which was very unique to begin with.

What is happening is that Kiwis are seeing a country that probably looks like a dreamland to most of the rest of the world and they're leaving it.

From an already small population, New Zealand has one of the highest rates of emigration anywhere in the world, with a bulk of them just making the short jump across here to Australia.

More than 10% of New Zealand's people currently live in Australia.

This isn't a small issue either.

There are in some cases just as many people leaving per capita from New Zealand as there are from third world countries embroiled in active conflicts.

And of course the question is, why?

To make matters worse, the bulk of this exodus is made up of highly productive workers right at the start of their careers.

Now, the population is still growing, but that has been fuelled largely by immigration to fill in the gaps left by the skilled workers who are leaving,

and that itself is creating other problems only making this whole issue harder to address.

And then on top of that, New Zealand is seeing the exact opposite problem coming the other way,

a certain group of Australians are flooding into New Zealand and doing what Australians do best.

So, what makes New Zealand's economy so unique?

What are the issues causing so many Kiwis to leave New Zealand?

And finally, why has this trend been so hard to reverse?

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New Zealand's economy is largely defined by the realities that it is quite small and extremely remote.

It has roughly the same total population as the city of Sydney just across the pond here in Australia,

and even here in Australia itself, we're not exactly known for our massive population.

But this is both a blessing and a curse.

A curse in the sense that building globally competitive industries there is extremely difficult because almost anything that can be done in New Zealand

can be done much cheaper at a much larger scale and much closer to shipping lanes up in Asia.

This isn't just traditional heavy industries either.

Financial services are usually a key export of comparatively advanced regional nations like this,

but why would anyone go do their international banking in Auckland when there is Singapore,

which is far closer physically to most commercial centres,

but also far more integrated into the global financial system for most business requirements?

Even if someone wanted financial services specifically for operations in this region,

Sydney is right there with a more widely recognised currency and a bigger overall market.

What's more is that the political connections between Australia and New Zealand are so close

that practically anything an international business would want to do in New Zealand can be done from a base of operations in Australia.

This closeness is an extremely big deal, so do keep that in mind.

The point is though, the only industries operating in New Zealand are industries that need to be there.

Tourism, local finance, local services, some regional maritime operations, they all play a role

and it must be remembered that the population is tiny, so there isn't a need for a huge number of huge services.

But a closer look at the exact breakdown of these industries will shed some light on these problems.

One standout area is agriculture.

New Zealand is one of the most agriculturally productive countries in the world, which is highly unusual for such an advanced economy.

The channel Hoza, Hoza, I don't know, the beaver dude did a great deep dive on this so I don't want to repeat too much here,

but the point is that New Zealand has taken farming which is typically an industry relied on by lower income countries

and used its incredibly fertile land, abundant water sources and modern technologies to produce valuable export commodities

that are very competitive in the global economy, especially next door in Asia which has a lot of mouths to feed.

Now this is great and all, but most well-educated city-dwelling New Zealanders aren't exactly lining up to go and work on farms,

there aren't that many jobs there anyway.

Farms in New Zealand are some of the most valuable in the world per hectare because they are extremely fertile

and because they're in the southern hemisphere, which means they can grow off-season foods for the much larger markets in the northern hemisphere.

But when people are spending this much on their farmland, it only makes sense to also invest into the best equipment as well,

which means most of these operations are highly mechanised and require relatively little human labour, so then what's left?

Well, the biggest industries in the country by far are all centred around housing.

Selling houses, renting houses, building houses, financing houses and governing the selling, renting, building and financing of all those houses

all collectively make up about half of the country's entire economic output.

Now this has caused two big problems.

For starters, there is obviously just the cost of these houses.

When this much of the economy is dependent on playing past the parcel of land,

it's perhaps unsurprising that this sparsely populated and very rote country has some of the most unaffordable real estate in the world.

Now, to be fair, the country has taken some steps to deflate this housing market like banning foreign buyers from purchasing property.

The idea was sound by cutting off a source of demand for property, all other things being equal, prices should have fallen.

But in reality, it didn't really do too much.

Before the ban, foreign buyers were only 3% of purchasers anyway and on top of that, it didn't stop the biggest source of foreign demand, which was Australians.

Because Australia and New Zealand really are so close, we have a lot of agreements where we will for the most part treat their people like our people and vice versa.

This means that the ban specifically did not include Australians who were the largest foreign buyers in the first place.

People in Australia on average have a lot of money and something like a holiday house or even a retirement home in places like Queenstown or Auckland

are extremely popular with wealthy Australians who want to live amongst beautiful sceneries without those sceneries actively trying to kill them.

Investing in New Zealand is particularly attractive as well because even though their house prices are extremely high,

they are still for the most part lower than major cities in Australia.

Oh, and on top of that, it can be very tax efficient.

Home buyers need to pay something called stamp duty when investing in a property here in Australia.

This is a fee of roughly 3% of the home price paid upfront, which doesn't sound too bad, but when a shack like this sells for $7 million, it does add up.

New Zealand doesn't have this upfront fee making it an attractive alternative.

Of course, most demand comes from within the country and for what it's worth, prices have been falling over recent years

thanks to government policies that have largely made properties less tax efficient investing vehicles.

The changes themselves, just like the foreign investor ban, haven't actually been that huge,

but even the indication that the government wanted to do something about house prices was enough to take a lot of the exuberance out of the market.

Either way, prices are still a problem, more so here than most other countries around the world,

and this makes it seem like a pretty open and shut case, right?

Young Kiwis who can't afford to start a life in New Zealand are moving out to somewhere where they can.

The problem with that assumption is that more than half of them are moving out of the frying pan and into the fire that is Australia.

If they really did just want cheaper homes, this would not be the move.

What they're really after is opportunity.

The only industries in New Zealand are those that really have to be there,

which means unless people want to work in agriculture or in jobs somehow connected to the local real estate market,

there is just more opportunities in larger Australian cities.

Now, this by itself isn't that unusual.

More specialised professions naturally tend to gravitate towards larger commercial centres.

If someone wanted to work as a fine arts curator or a high-end researcher or even just a senior manager,

most of those jobs can't really be found in small country towns,

there just isn't enough demand to support those roles in smaller commercial centres,

so naturally they tend to shift towards big cities.

The thing that makes New Zealand so unique though,

is that the big cities all of these jobs are gravitating towards are in a different country.

Braindrain, like this, is also not unique, but it doesn't usually impact high-income countries quite this much,

and again, the reason this is happening to New Zealand is its closeness with Australia.

For simplicity, the legal and political connections between these two countries are kind of like those within the EU.

People from either side of the Tasman are free to live, work and buy housing in either respective country,

with very few restrictions, which for New Zealanders means that there isn't much stopping their people from leaving.

It's also worth mentioning that opportunities for education are generally more plentiful in the larger cities of Australia as well.

We have a larger number of larger universities and we treat students from New Zealand the same as local students

when it comes to tuition costs and even government-operated student loans for certain Kiwis who meet residency requirements.

As something of an anecdotal example, when my partner went to medical school,

about half of the students in their year were from New Zealand because there were just more places available for this kind of study in Australia.

On top of this, the jump between NZ and OZ is arguably easier than people moving within the EU

because both populations down here speak English as their first language, and culturally, we are extremely close.

It's not something that economists or demographers like to address too openly,

but the reality is that a New Zealander living in Australia is not going to attract the same animosity

when compared to migrants coming from other countries.

So yeah, the reason that so many New Zealanders are leaving New Zealand is because it's really easy,

and to most young professionals, Australian cities are just slightly more attractive.

Unfortunately though, as simple as this dynamic is, reversing its effects is going to be extremely difficult.

Currently, there are almost 600,000 New Zealand-born people living in Australia,

more than 10% of the total number of people living in New Zealand.

There are also about 90,000 Australians who have gone the other way,

but again, they tend to be older, independently wealthy retirees who aren't going to contribute much to the labour market.

To make up for losing all of those young workers,

New Zealand has had to fill in the gaps primarily with immigration to support its ageing population.

Now, the arguments for and against skilled migration are plentiful and long and frankly a bit tedious.

Most people have made up their mind on the issue and obviously economics is just one part of the discussion,

but in the case of New Zealand, it's again a little bit different because yes,

they have brought in new arrivals mostly from the large population centres in Asia to fill in for the people leaving.

One thing is, a lot of the people who have migrated there are leaving as well.

And where do they go? Well, largely to Australia.

This has given New Zealand a bit of a reputation as a backdoor into major cities like Sydney and Melbourne.

In general, it's easier to apply for working visas, permanent residency and eventually citizenship in New Zealand

because they do need to maintain their leaking workforce,

but once someone has that, they can just move to Australia as well.

A first-generation New Zealand citizen is also going to be less attached to a country that they've only spent a few years in

when compared to people who were born and raised there.

So basically, New Zealand is just becoming an expensive retirement home for wealthy Australians and Kiwis to enjoy their views

while being served by a workforce just waiting for their turn to jump ship to Australia.

Okay, it's not quite that bad, but it's still not great.

And it begs the question, if New Zealand is losing so many people to this open relationship with Australia,

why don't they just tighten down on the relationship?

Well, that would be very difficult just simply from a political perspective.

Remember, 10% of New Zealand's population currently lives in Australia

and as a general voting bloc, they aren't going to support a policy that makes their lives harder.

Most people are generally very supportive of this flexibility as well

because it's good for them even if it isn't necessarily good for the country itself.

Geopolitically, it probably wouldn't be that easy either.

I know I have said it a lot in this video already,

but Australia and New Zealand genuinely made the the friendliest countries in the world.

And then there is the economics.

Obviously, losing so many young productive workers hurts,

but a lot of those workers don't leave forever.

A lot of them return later in their careers with skills collected from Australia

and they often bring back a lot of cash with them too,

which can then get pumped back into the local economy.

The actual solutions are going to be more considered steps

just to make New Zealand rewarding to young workers.

Now, of course, providing good jobs and reducing relative housing costs is easier said than done,

but they do have some advantages.

A relatively low debt-to-GDP ratio means that the government does have some wiggle room

to enact big change if it ever feels it's necessary,

and beyond all of that, it's a lovely place to live.

The reason they can sell golden visas to billionaires

and multi-million dollar lake houses to Australian retirees

is because it's a safe, stable, clean, and very picturesque country.

That may sound wishy-washy in the field of economics,

but it genuinely matters.

And while they have that, they will always have a long line of people at their doorstep.

In fact, even here in Australia, the country causing all of these problems

for our poor little cousin across the sea,

we are more reliant on these intangible factors than we would probably like to admit.

But we've made an entire video on that last year,

which you should be able to click to on your screen now.

Thanks for watching, mate. Bye.