RODNEY S RAVING. Regional winners and losers from the evolving economy EXECUTIVE SUMMARY

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1 RODNEY S RAVINGS take an open-minded and at times irreverent look at topical economic issues. Unlike our pay-to-view reports that are for the eyes of subscribers only, the RAVINGS are free and you may forward them to other people. You can signup to the RAVINGS on our website The same distribution list is used for the Property Insights reports and for notification of forthcoming seminars and property market reports. RODNEY S RAVING Regional winners and losers from the evolving economy EXECUTIVE SUMMARY When viewed over decades the industrial structure of the economy and the types of jobs available evolve significantly. A brief review of what has happened in NZ over the last 76 years shows how dramatic this evolution can be, including for the regional distribution of the population. Other factors like climate have played a part, but it is normal rather than unusual for some regions to be major winners and others big time losers as a result of the evolving industrial structure of the economy. Looking ahead I expect IT-related and new economy industries to play the major part in driving job creation, with this already reflected in job ads (e.g. 14% of total job listings on Seek on 25 January 2013 were for information, communications and technology jobs). Some regions and especially are well placed to benefit from this, while a number of regions are at risk of missing the boat, as discussed in this report. The regions that win and lose from the evolving structure of the economy also win and lose, respectively, in terms of the performances of house prices, retail spending, etc., etc. But there will be some other regional and industry-specific factors at work, as there have been in the past (e.g. and the significantly outperforming for mining and resource sector job listings; dramatically outperforming for construction job listings because of the rebuilding). The job listings data on the likes of Seek and Trademe are useful at taking the pulse of what is happening with the evolution of the economy from national and regional perspectives, and for seeing how some other industryspecific or regional-specific factors are impacting on regional economies. Rodney Dickens Managing Director and Chief Research Officer Strategic Risk Analysis Limited rodney@sra.co.nz Strategic Risk Analysis Limited. All rights reserved. January

2 A brief history of the evolving economy and regional winners and losers From year-to-year the industry structure of the economy and the regional distributions of employment and the population don t change much. But over a lifetime they can change dramatically is roughly a lifetime ago and in the Census of that year 67.9% of the population were reported to live in urban areas (1,065,228) and 32.1% lived in rural areas (503,885). Based on comparing apples with apples as best I can, between 1936 and the latest Census in 2006 the rural population grew 12% to 564,786, while the urban population grew 225% to 3,463,164. Rural areas with high, moderate and low urban influences are included as rural in the 2006 figures, which also appears to be the case in the 1936 figures. This means the data significantly overstate the percentages of the population living in rural areas. But the key point is the near stagnation of the rural population versus the massive growth in the urban population. Several factors were behind urban areas dramatically outperforming rural areas in terms of job creation and population growth between 1936 and 2006: The amalgamation of many small family farms. Centralisation of primary product processing away from rural villages and towns. Several factors contributed to this (e.g. improved roads, trucks and refrigeration; economies of scale). Growth in manufacturing and service sector jobs in urban centres, with growth in the manufacturing sector important first but now it is a dwindling sector that is being upstaged by the service sector. The biggest losers have been rural villages and towns; the worst impacted of which are now little more than ghost towns. In 1941, the earliest year I can find data for, there were 86,373 farms nationally compared to a population of 1,631,200 (i.e. an average of 19 people per farm). By 2010 the number of farms had fallen to 59,907 while the population had grown to 4,367,800 (i.e. 73 people per farm). It should be no wonder that long gone are the days farm incomes played a major part in driving economic cycles. But other factors have been at work, including climate, while the battle has also been between different urban areas where there have been some major losers and winners. Climate has played a significant part nationally and within the North and South Islands, with drift to warmer climates in the north. The drift from to Kapiti is an example of this within a region. The charts below show the strong performances of Tauranga, Hamilton and in the North Island that have benefited significantly from both the rural to urban drift and the drift north or to warmer climates. Hamilton isn t renowned for its climate, but the proximity to and Tauranga (relevant partly in part because both have ports) and the reasonably central location in the upper North Island have served it well. % of National Population for Urban Areas Source: Statistics New Zealand Blenheim Kapiti Tauranga Rotorua Whangarei Nelson New Plymouth Timaru Hamilton Palmerston North Wanganui Invercargill Napier-Hastings Dunedin Christchuch Population Growth 1936 to 2012 (%) Source: Statistics New Zealand Blenheim Kapiti Tauranga Rotorua Whangarei Nelson New Plymouth Timaru Hamilton Palmerston North Wanganui Invercargill Napier-Hastings Dunedin Christchuch 2

3 In the South Island, Blenheim and Nelson have been the major winners in terms of experiencing the strongest population growth and a growing share of the national population (charts above). Nelson is probably best viewed as the Tauranga of the South Island, although maybe it should be the other way around because Nelson was the front runner. Industry-specific factors will have also played a part (e.g. the growth in the wine industry boosting jobs and population in Blenheim/). Rotorua s strong performance probably relates more than anything to tourism, which is part of the service sector story that will be relevant to other areas. Whangarei s reasonably strong performance probably reflects mainly climate/drift north and possibly in part proximity to. The urban areas that have performed the worst since 1936, like Dunedin, Timaru, Invercargill, Wanganui and have been at the short end of the stick in terms of the criteria above. They have lost out because of the dwindling importance of servicing the rural population, because of distance to the larger urban centres that have grown strongly and/or because of less favourable climates. Dunedin and Hamilton are interesting comparisons. In % of the national population lived in Dunedin versus 1.3% in Hamilton. By 2012 Dunedin s share had shrunk to 2.7% while Hamilton s share had increased to 4.7%. I have no doubt that climate has been a major factor holding Dunedin back, but just as important is the proximity of Hamilton to the fast growing and Tauranga populations and to the ports of and Tauranga. The ports are relevant in terms of the likes of dairy exports, with Hamilton having a massive storage facility. Hamilton is a hub in the central North Island for exports and for the distribution of imports and locally produced goods. When I ve driven around Dunedin what has struck me most is an aged stock of industrial buildings, some of which have been converted to other uses. What strikes me about driving around Hamilton and especially the Te Rapa area at the north end of Hamilton is the large number of relatively new industrial buildings. High industrial land prices and some other factors have stalled industrial development in Hamilton for the moment, but some other factors are picking up and its strategic position should continue to matter. The labour market provides insights into regional implications of the evolving economy The rural sector probably has one of the highest productivity growth rates of any sector (e.g. improved grass types, improved herd/flock genetics, improved animal husbandry, etc). But as new service sector industries develop and play a major part in driving future job creation I expect the major urban centres and probably especially, and Christchurch to be the beneficiaries. I am the contradiction to All Classifications ICT Jobs this because I am in the process of moving from a major urban centre to the countryside, which is because of the nature of my job and my time of life (i.e. more focus on lifestyle and less on income). But when I look at the new economy companies that will play an increasing role in driving job creation they are predominantly based in the major urban centres. The need to be near colleagues, clients and contacts should not be overlooked (i.e. while technology frees people like me to be based in provincial NZ, it won t free most of the workers in the new IT-related companies and jobs). In a June 2012 Raving I provided details of a wide range of new economy firms that included agricultural-related and whizz-bang IT companies, and a wide range of weird-and-wonderfuls (see By intent it gave the impression the new economy was playing a part all over the country, which is true to an extent. But when I review the full list of the new economy-type companies I have info on, the geographical distribution is clearly biased towards the major urban centres and especially to. Looking at job ads data helps shed some light on which regions are winners and losers in terms of where new economy type jobs are being created. 3

4 57% of the information, communications and technology (ICT) jobs listed on on 25 January 2013 were in the region. came a distant second at 26% and a distant third at 10% (chart on page 3). But it is possible that firms in the major urban centres are more inclined to advertise jobs online than firms in towns where the local newspaper may still play a larger part. So as way of benchmarking, the chart on page three shows not only the % of national ICT job listings by regions but also the % of all national job listings by region. The chart on page 3 shows that and both have significantly higher shares of ICT job listings than of total job listings. In all but one of the other regions the share of ICT job listings is dramatically lower than the share if total job listings. The exception is and that probably reflects the very small sample size of job listings. The future won t be just about a growing number of ICT-related companies, but is also about the growing importance of ICT jobs within traditional companies. Based on the international literature I ve read there are good reasons to expect IT-related and other new economy jobs to become of increasing importance (e.g. robotics, a range of science-based industries). And for the immediate future and probably longer, the major urban centres and especially will benefit from this. It is possible that this is a factor driving the stronger performance of the housing market most recently, as discussed in the Housing Prospects reports that cover the outlook for house prices in 24 cities/districts as well as nationally (for info on these reports visit The charts below show that existing dwelling and section sales reported by REINZ have been performing much stronger in than nationally in the last couple of years. Flight from the earthquakes will have played an important part in driving the outperformance initially, but is not likely to be a major factor now based on the analysis of migration flows presented in the Housing Prospects reports. It seems the key factor now is that is generating jobs while a number of other urban centres are struggling to do so. 4,000 3,500 3,000 2,500 2,000 1,500 REINZ Dwelling Sales Rolling three month average numbers Proportional scales Region, lhs Rest of NZ, rhs 1,000 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 8,100 7,100 6,100 5,100 4,100 3,100 2, REINZ Section Sales Rolling three month average numbers Region, lhs Rest of NZ, rhs 0 0 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 1,100 1, Mining, resources & energy Government & Defence In addition to new economy companies playing a part in driving job creation and where people live, industry-specific factors can play a part. When I looked at Government & Defence job listings was the standout region with 51% of all listings. However, government belt-tightening is in place which probably means fewer Government & Defence job listings in currently than was the case during the period when the Labour Government was growing the civil services. The belt-tightening is reflected in housing stats underperforming, as we predicted would happen in the Housing Prospects reports. It should be no surprise that and the are the standout regions when it comes to job listings for mining, resources and energy. The smaller the region the more industryspecific factors have the potential to have a major impact on job creation and population growth. 4

5 is also something of an over-achiever when it comes to hospitality and tourism, but is also a major outperformer in terms of job listings for hospitality and tourism (left chart below). and is a strong performer in terms of farming, animal health and conservation job listings, while provincial NZ in general performs well on this front with the exception of. and to a lesser extent are the obvious under-performers when it comes to agricultural jobs. The rebuilding of is reflected strongly in the job listings data, with almost matching in terms of the region with the largest share of national construction job listings (right chart). But when it comes to job listings for trades and services it is a much more balanced story between the regions, although is most likely benefitting from rebuilding while is most likely suffering from fallout from government belt tightening (right chart). and aside, the much greater balance between population size by region and share of job listings for trades and services by region tells a story. In the first instance growth of a specific industry or group of industries creates jobs and fuels population growth, just as the death of an old industry or group of industries can stunt or kill employment and population growth. I think the most important story in this context over the next decade will be increased IT-related jobs, but there could be some interesting provincial stories (e.g. resource sector stories?) Hospitality & tourism Farming, animal health & conservation Construction Trades & services The growth and death industries set in motion positive and negative economic multiplier effects, respectively. North Hamilton s growth in the last couple of decades provides a fantastic case study of positive economic multiplier effects at work. First the industrial firms moved in, creating jobs and fuelling strong growth in residential building in new subdivisions at the north end of the city. Then service sector firms started popping up, reflected in the evolution of the composition of building (i.e. more retail and service outlets and less industrial buildings). But the industrial development and the associated economic multiplier effects have largely run out of steam in Hamilton, but as discussed in the news article related to the link below, redevelopment of the old CBD is starting to take over as a growth driver. The jobs listing data provide some useful insights into which regions are winners and losers from what I expect to be the biggest game in town for the next couple of decades (i.e. the broadening and deepening of IT-related and more generally new economy jobs). But they also provide some other interesting regional insights. 5

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