FEATURED IN: The Australian – Hit pause on migration as nation overtrades into housing spiral

22 November 2023

By Andrew Schwartz, Group Managing Director, Co-Founder and Chief Investment Officer at Qualitas Limited

In the corporate world, it’s known as overtrading and it happens when an otherwise successful business expands too quickly without the resources – cash, stock, staff – to support that growth.

Unless addressed, the business will collapse, a victim of its own success.

This is exactly what I see happening at a much bigger scale in Australia. A vibrant multicultural nation – a desired destination for generations of immigrants – we are a victim of our own success. We do not have the resources to support growth rates.

This is not an argument against immigration. While respecting the impact of colonisation on our First Nations peoples, immigration has been critical to the development of modern Australia, and it remains critical to its future. Migrants underpin our economic growth and the cultural richness of our society.

It is an argument for a temporary reduction in the record levels of immigration to give our infrastructure – particularly our housing stock – a chance to catch up before more harm is done to the economy, to housing affordability and to historically strong support for migration.

No one disputes the fact that Australia needed to rapidly restore immigration levels as the world emerged from Covid-19. After the collapse in immigration levels during the pandemic, the nation was facing a significant labour shortage in vital industries, from childcare to construction. In many sectors it still is, with the sharp fall in foreign students also felt across the economy.

However, no one foresaw the kind of immigration numbers we are seeing today. A year ago, Treasury estimated net overseas migration (NOM, long-term arrivals minus long-term departures) at 235,000 for the current 2023-24 financial year.

In the year to March 2023, NOM actually topped 450,000 – contributing to the highest overall population growth in 60 years – and there are now widespread expectations it will pass 500,000 in the year to September 2023. That would represent the highest figures on record.

Every one of those new Australians will be relying on the nation’s infrastructure and services – from highways to hospitals. Most importantly, every one of those people will need somewhere to live.

The simple reality is that we’re not building anywhere near enough houses. All of the states and territories have signed up to the Commonwealth’s target of building 1.2 million new homes in the next five years – 240,000 a year or roughly 4600 a week. ABS data shows about 170,000 dwellings were started in 2022-23.

The gap between supply and demand is widening. In the June quarter, we built about 3200 homes a week.

Immigration is not solely to blame – housing demand has outstripped supply for several years – but with the number of new arrivals from overseas now approaching 10,000 a week, the issue is obvious, and the effects are painful for those locked out of home ownership.

House prices continue to hit record highs, with a nationwide gain of almost 8 per cent since the start of the year and record low rental vacancy rates of about 1.1 per cent mean rents also continue to rise at double-digit rates.

There are a multitude of reasons why we cannot build houses fast enough, from poor government planning and approvals processes to the rising cost of capital and a shortage of raw materials and tradies. These factors have contributed to rising delays and costs, which have in turn forced some residential home builders to the wall, exacerbating the housing crisis and fuelling the inflationary pressures throughout the economy.

We’re clearly in an inflationary spiral as rising costs drive higher wages, which in turn increases spending power and prices, and it’s proving very hard to break.

The Reserve Bank’s rapid interest rate increases are undoubtedly hurting but there remain many sectors of the economy that do not appear to be slowing, with house and rental prices the most obvious.

While interest rates look likely to stay higher for longer, the most immediate option for the federal government is to temporarily reduce record immigration levels.

This must be done smartly by ensuring the door remains open where we have genuine skills gaps and by ensuring Australia continues to meet its humanitarian obligations.

Even then, on current trends it may take five years to catch up given the challenges in the market.

Australia is not alone in wrestling with this issue. In Canada, a country with comparable economics and demographics to Australia and with NOM running at similar levels, historically strong community support for high immigration is being tested by the strain on services and housing.

Last month, in response the Canadian government announced it would incorporate planning for housing, healthcare and other services into its immigration strategy.

There are lessons here for Australia. As Canada has recognised, you cannot divorce demand for services, particularly housing, from immigration policy.

Right now, the most sensible solution is a short-term reduction in migration to release some pressure in the economy, to give homeowners and renters a break and to buy some time to allow our housing infrastructure to catch up with demand.

As featured in The Australian (subscription required) – 21 November 2023.

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