Record population growth smashes into decades of poor planning
Australia squandered the pandemic’s migration pause and is now dealing with the painful consequences of indolence, especially in the rigged casino that is the housing market. It’s another collective failure of imagination, will and execution that manifests itself in some of the planet’s most expensive real estate, in a land where we declare there’s “boundless plains to share”.
The nation’s population grew by a mammoth 660,000 in the year to September, or “almost one and a half Canberras” according to independent economist Chris Richardson, because of a record net inflow of 549,00 foreigners. The last time we experienced a higher proportionate increase from migration was more than 100 years ago, when Diggers returned from the Great War.
“We haven’t built the houses and the broader infrastructure, the roads, schools and hospitals, to accommodate these extra people,” Richardson tells Inquirer.
The Albanese government claims this result will likely be the peak and normality will return next financial year to something like 250,000 net overseas migration. You’d be gullible to take it at its word on the broader trend because temporary migration, rather than the managed permanent program, has been the tail wagging the population dog for many years. Plus official forecasts have been spectacularly wrong during the upswing.
It’s an artificial surge, driven by the wave of students, backpackers and temporary workers since November 2021, when the Morrison government began the staged international border reopening. Labor came to power in mid-2022 when employers were screaming about “worker shortages” as a threat to the cashed-up and liberated consumer-led recovery from the pandemic.
The new government amped-up visa processing capacity to clear a huge backlog of cases, whereas the Coalition had used immigration’s administrative machinery to constrict the flow. Labor also extended the visas of foreigners with work rights, who stayed during the pandemic.
The bureaucratic handbrake may not qualify as good policy but it does translate into effective political management. It hurts foreigners, mainly, and obliges employers to tap the pool of local unemployed or increase the hours of existing employees.
Home Affairs Minister Clare O’Neil maintains she has tightened up on rorts in the foreign student market, after the review by Christine Nixon last year, and that the rate of student visa approval has plunged from the post-pandemic catch-up. Ahead of Thursday’s population figures, O’Neil announced the targeted squeeze would start this weekend.
The government’s heightened sensitivity to all things migration – given the hot mess of detainees released into the community after last year’s High Court ruling – is another push-back factor on more foreigners, as is a simmering community backlash against poor migration planning.
Richardson says the idea that migrants steal jobs has been discredited for decades; it reminds him of the 1970s when boofy blokes decried the entry of married women into the workforce. The strength of the post-crisis labour market in the face of decades-high growth in the working-age population, perhaps 100,000 people larger than if the pre-pandemic trend had not been disrupted, is another example of demand growing to meet the extra supply.
But in the case of housing, he says, “migrants produce an extra demand and supply has not kept up with it”. In the short term it’s important to see what effect the recent changes to limit international students will have, while trying to increase housing supply to take the pressure off rents and improve housing affordability.
Former Reserve Bank governor Philip Lowe highlighted how the record population surge was pushing up rents and housing prices. It also was making it harder for the central bank to calibrate its monetary response to inflation.
“All these people coming in have to live somewhere,” Lowe said last July. “Population growth brings huge advantages to the country, but we need governments and businesses to keep investing to build a capital stock to support a stronger population.”
As well, Lowe argued in his valedictory address in September last year that Australia’s world-leading property prices were “a serious economic and social problem” and the outcome of the choices we have made as a society: about where we live, how we design our cities, and zone and regulate urban land, how we invest in and design transport systems, and how we tax land and housing investment.
Forecasters are presenting evidence that we’re likely to fall further behind in the quest to house a rapidly growing population. Last April, the federal government’s housing adviser said stronger than expected migration, higher mortgage costs and a squeeze on construction could produce a 175,000 shortfall in new homes across the next five years.
But that was with an expected migrant inflow of around 650,000 across the two years ending this June. That 24-month total now looks like being around 900,000, meaning an extra 275,000 dwellings will be required.
Home building is in a funk. The industry claims Labor’s intention of building 1.2 million new homes across five years will fall short because of high borrowing costs, materials costs and regulatory hurdles. There’s also the “big build” in major state projects that is leading to workforce shortages.
After soundings via its business liaison program, the RBA warned last month: “Home building is expected to slow over 2024 as builders work through the backlog of construction work.”
“Overall, contacts in this industry are expecting less activity in the coming year due to slower land and building contract sales in 2023,” the central bank said in its Statement on Monetary Policy.
Every high-level overseas delegation tells us we need land zoning reforms to unlock supply for housing. As well, there’s the plain dumb impost of stamp duty that has contributed to the housing debacle: the property slug makes homes less affordable for young buyers, hinders productivity by stopping people from taking up better-paid jobs with high-performance firms in new locations and keeps older people in homes that aren’t suitable for them.
We’re in the early stages of a generational tussle on housing that will shape local, state and federal politics for years to come. The Greens have tapped the property anxiety of millennials and Gen Z; their solutions may not be viable and are, frankly, loopy in some cases. But young voters, who are typically renters and owner-aspirants, appreciate that their concerns are under the spotlight because of the minor party’s PR efforts.
It’s hard to see the big capitals growing beyond the current fringe, given the work and lifestyle preferences of young people. Demographers see more “densification” of the middle-ring suburbs with good public transport connections. Politicians with modest dreams of “infill” and medium density are feeling the backlash from time-rich boomers and Gen Xers with backyards and school-age children who want to “save our suburbs”.
Unplanned population growth raises the temperature several notches. Again, the pandemic was the time to get busy and smart: on migration policy, housing supply and transport infrastructure. Sure, supply chains were broken and material prices surged, but we failed to change our ways and build. We’ve been swamped by reality as the Big Australia Express roars back.
The migration review headed by Martin Parkinson, which reported to the government almost a year ago, was emphatic about the need to provide housing so our cities and regions could not only cope but thrive. The expert panel concluded the visa system was broken and required holistic long-term planning and settlement, rather than an ad hoc, often chaotic, approach that produced booms and busts because of temporary migration.
“If the supply of infrastructure and housing does not keep up with demand created by migration, the quality of infrastructure and housing services may deteriorate, and prices may rise,” the review said. “As a result, material and non-material living standards of the local population and newly arrived migrants may be undermined.”
Deloitte Access Economics argues “the new migration strategy needs to thread the needle between short-term pain and long-term gain”.
“The strategy focuses on reducing the number of migrants who aren’t contributing to the productive capacity of the economy, such as the growing cohort of ‘permanently temporary’ migrants who are staying in Australia long term without joining the workforce,” Deloitte said in its latest Investment Monitor.
“But it remains to be seen whether revamped skilled migration channels will be successful in boosting the capacity of Australia’s overloaded construction workforce as it prepares for a big five years.”
According to Richardson, “the problem isn’t migration”. Richardson says our country has been enriched by migrants and is the foundation of our prosperity. “Housing is broken,” he says. “But fixing the housing market will take so long that reducing migration now will ease some of the demand pressures.”
The Albanese government took its time to fashion its migration response. Labor’s first priority is to cut the overall numbers and deflect opposition attacks about losing control of our borders; its lack of an alternative policy leads to a tedious drumbeat of “Big Australia” by stealth to fill the void. Given its track record in office, the Coalition should not be so emboldened.
Yet Labor looks rattled, often stunned, on migration and is not showing urgency in getting the job done. Perhaps it’s waiting for the trend to be its friend; that “normal” returns in a slowing economy as foreigners stay home and the government can diligently work through a to-do list on housing and migration.
Dream on. We did not build it, and still they’ve come to study, work and play.
Our chicken-hearted choices are coming home to roost.
Australia’s red-hot property market is proof of a long history of poor choices on land-use planning and migration.
