Cities prosper, while regions struggle

03:17, Jun 21 2014

Parts of rural New Zealand are struggling and are at risk of becoming migrant "ghettos" while the nation's two biggest cities roar ahead, an economist warns.

Shamubeel Eaqub, chief economist at New Zealand Institute of Economic Research (NZIER), this week said growing inequality between regions was the "elephant in the room" being ignored by policymakers.

The inequality spanned geographical, race and education lines, creating the risk of even affluent farming regions like Southland producing European-style migrant "ghettos".

Pay and job prospects were fragile in some of these pastoral strongholds.

In the deep south, migrants bridging gaps in dairying were at risk of becoming socially and economically marginalised, Eaqub said.

Reserve Bank Governor Graeme Wheeler last week raised the official cash rate (OCR) 25 basis points to 3.25 per cent, the third increase since March, when he started lifting the rate from its low of 2.5 per cent.


Eaqub said New Zealand's growth in the first half of this year was being driven mostly by Auckland and Canterbury, and many other areas were stagnating or going backwards.

Raising the OCR was a "huge mistake" that would punish the provinces, many of which were struggling, he said.

Regions like Northland and the East Coast had relatively high unemployment, while the growth of wages and employment was "flat or falling" in other rural regions.

ANZ chief economist Cameron Bagrie said many regional centres were doing exceptionally well, to the extent that mid-sized cities like Dunedin were being propped up by outlying areas.

He suggested Eaqub was "grandstanding" on the economics, given that he only recently suggested the provinces were being hurt by speculative investment in Auckland housing.

Eaqub was now blaming structural weakness linked to OCR policy, Bagrie said.

"You can't have it both ways."

It was wrong for NZIER's expert to claim New Zealand was a "two or three-shot economy" dependent on Auckland housing, the Christchurch rebuild and strong dairy commodity prices, Bagrie said.

In the South Island, places like Queenstown and Wanaka had overtaken centres like Rotorua and Taupo as wealth generators on the back of tourism, farming and related industries.

It was a similar story in Canterbury, where parts of Mid and South Canterbury were "absolutely flying".

"Now, that's not Auckland overflow stuff. That's a result of the irrigation development we're seeing on the Canterbury Plains."

In fact, rural pay rises had encouraged people to quit some of our biggest cities.

Between 2006-2013, Auckland had a slight net outflow to other parts of the country, Bagrie said.

Outside the obvious irrigation zones, areas like Marlborough, which had just had a record grape harvest, were improving, he said.

The "good vibe" Bagrie felt in Blenheim this week was significantly better than during the Global Financial Crisis (GFC), when wine prices slumped and land values crashed in sympathy.

It was true that pockets of rural New Zealand, including Northland and the East Coast, were struggling with "deep-rooted" economic weakness, he said.

Dunedin was "really struggling", and looking to spinoff from Central Otago for its prosperity.

Nationally, rural incomes were generally rising, as employers were forced to pay more for well-qualified staff.

Agricultural wages had jumped massively in the past decade, to a point where good university graduates could expect to start on the same salary as a new lawyer or accountant.

"You go call a farmer and ask what the starting salary is. She's a long way above minimum wage," Bagrie said.

"There's all this hocus-pocus out there about agricultural staff not getting paid.

"The real problem is getting the bloody staff in there."

The urgent need for overseas migrants to fill rural jobs was a commentary on New Zealanders' attitudes to agricultural work, not a sign that the regions were doing it tough, he said.

Bagrie spent his university holidays picking fruit in Central Otago but understood this long-running supply of Kiwi workers dried up during the GFC, forcing employers to look overseas for staff.

It was only now that the local labour force was returning to that seasonal work in good numbers.

Eaqub had earlier argued that structural economic problems were making it harder for provincial New Zealand to keep pace with cities.

House prices in Auckland had risen 20 per cent in real terms since 2007, with prices up 13 per cent in Canterbury and seven per cent in Wellington.

However, prices in the rest of the country fell 21 per cent in real terms during the same period.

While Auckland had had the fastest jobs growth over that time at 4 per cent, some areas, such as Whanganui, had more than 10 per cent fewer jobs now than in 2007.

In Kawerau, the country's poorest location, the median income was about $25,000 a household. In Auckland's eastern suburbs, the median income was $120,000. Eaqub blamed the gap between haves and have-nots on structural rather than cyclical factors.

There were demographic and economic factors in the regions to consider, such as the ageing population and the loss of manufacturing jobs. Manufacturing had been in decline since 1966, and there were fewer manufacturing jobs than in 1946 in absolute terms.


The Press