Immigration

It is time we had an honest conversation about the real reason we have a housing affordability crisis: immigration.

It is to our nation’s great detriment that the immigration debate has been dominated by a xenophobic (please explain?) minority who oppose it for cultural reasons, while the economic merits of high immigration have remained largely unquestioned.

Strong bipartisan support for immigration has continued for so long that there seems to be an entrenched belief that high immigration has no costs, only benefits. We have obsessed over handfuls of illegal immigrants and not questioned whether the millions who come legally are having a net benefit on our quality of life.

Now, I should add here the well-worn disclaimer that I am in no way opposed to immigration, nor am I doubter of its benefits. Like most Australians I am proud to live in a country that represents multiculturalism done well (and it can be done very badly). But in recent times I have been giving greater thought to the impacts of immigration and am increasingly convinced that we have failed to properly consider the fundamental question of how much immigration is enough, or indeed too much.

The first point is that in a country like Australia where the fertility rate is low, immigration policy is population policy. When considering the impacts of high immigration, we are effectively considering the impacts of high population growth.

The first and most fundamental issue associated with rapid population growth is housing. Debate about housing affordability has tended to focus on either supply side factors (e.g. planning controls) or policies that stoke demand (e.g. tax breaks for property investors). In reality, the impact of these factors is totally dwarfed by the impact of population growth. This is where the demand comes from in the first place, yet this point is often overlooked. The chart below is a powerful demonstration of this point:

When you consider the massive house price growth in Australia and its impacts, the true cost of immigration starts to emerge:

• A generation of young Australians who can’t afford to buy a house, and pay an increasing portion of their income in rent

• A massive transfer of wealth to property owners, such that a young Australian’s financial position now has more to do with who their parents are than how hard they work

• Reduction in the quality of housing and neighbourhoods, with priority given to cramming as many dwellings into a block of land as possible, at the expense of open space

• Construction of housing on the outskirts of cities without adequate infrastructure and amenities

• Construction of more houses than the building industry has capacity to deliver, with consequent inflation of prices for labour and building materials

The argument is often made that population growth helps to boost our economy, but the numbers seem to contradict this conclusion as well. The best indicator of a nation’s relative economic prosperity is GDP per capita (PPP). Our growth in this indicator since 2005 (3% per year) is only slightly better than the average of the 6 countries shown above (2.7% per year), and were it not for the mining boom it would almost certainly be below average. In fact, because mining GDP is independent of population, our GDP per capita would be even higher were it not for our population growth. The reason Norway is the richest country on earth is because its substantial oil income is distributed across a small population.

There are benefits to having a bigger aggregate GDP, and population growth certainly achieves this outcome, but it would be wrong to think that very high immigration is somehow essential to our economic prosperity.

There is also an argument that says Australia needs high immigration because of its dire labour shortage. This argument is rubbish and ignores the reason why we have a labour shortage in the first place: we have an overheated economy due to people spending the savings they accumulated during COVID. Aside from a few key areas, we don’t have a shortage of labour, we have an unsustainably high demand for goods and services relative to our economic output. The RBA is raising rates to reduce this demand, and with reduced demand comes unemployment. Increasing the supply of labour now will only make the inevitable uptick in unemployment more severe when it finally arrives.

We can and should encourage immigration to Australia for all of its many well-established benefits. What is needed is a better plan for how Australia will house new arrivals.

Policy Idea: mandate that a significant portion of visas require an initial period living outside of a capital city.

Although many people who choose to come to Australia want to move to the major cities, demand for immigration to Australia is massive and there are plenty of people who would happily live in a place like Geelong or Bendigo if that was their only choice. This need not even be a permanent restriction, because after putting down roots most people would prefer to stay where they are.

This is all the more feasible in the era of remote work, where office jobs that were previously only available in capital cities can now be carried out remotely (or with one or two days in the office). This option could be further facilitated by building high speed rail connections between capital cities and regional towns to make them commutable.

Policy Idea: restrict immigration based on housing supply

The current government plans to let in over a million new immigrants in the next three years, yet rental vacancies are at an all time low and new dwelling commencements are trending downwards. It is simply irresponsible to let this number of people in without enough dwellings to house them, and it is frankly unfair to Australians who already are struggling to find a place to stay.

The government should put in place a strategy for matching immigration with the supply of housing, and change the intake based on metrics such as vacancy rates.

Immigration provides a compelling opportunity for the Liberal Party to clearly differentiate itself from the government. We can and should commit to reducing the immigration intake to levels more in line with our OECD peers, at least until our housing supply catches up.