What if we stopped immigration? Would that help our housing crisis?

We currently have a shortage of houses for rent or to buy, and this is causing prices to rise and rents to skyrocket and the housing crisis, the likes of which I’ve never seen in my 50 years of investing.

Of course, the main underlying factor leading to this challenge is that we are not producing enough dwellings for the strong demand, much of it related to our strong immigration.

Last year we experienced a record-breaking rate of net overseas migration, estimated to have reached 500,000 people in the year to September 2023.

The Government has designed its Migration Program to address persistent and emerging skills shortages and to attract people with specialist skills that are difficult to find or develop in Australia.

As Australia is building the domestic pipeline of highly skilled workers, the permanent Migration Program will help:

• build resilience
• boost productivity
• support our economy as it transitions to net-zero emissions.

While universities and colleges have benefited financially from the student boom, as already mentioned the surge in temporary migration has contributed to overheated rental markets.

This situation is becoming politically sensitive and has led some people to ask: “Why can’t we just decrease demand by stopping immigration?”

I’ll answer that question in a moment, but first, let’s have a look at…

Population forecasts for the next decade

The federal government plans to fix Australia’s “broken migration system” and to “bring migration back to sustainable, normal levels”.

 Having said that, according to the Centre for Population, Australia’s population will still grow by around 370,000 people a year for the next decade.

This means Australia’s population will grow by 14% over the next decade.

Source: Demographer Simon Kuestenmacher in The New Daily

Our government sets immigration targets to control the migrant intake to suit our needs and requirements such as skill shortages, and it is suggested that over the next decade, three-quarters of migrants will be aged between 19 and 39.

We also know that the government is keen to “import” migrants who will be paying taxes to help fund our ageing population as well as the pension and healthcare systems.

We will be adding relatively few children, and even though we will need to add more childcare facilities, schools and sporting infrastructure, this will be at a lower rate than the total population growth.

On the other hand, population growth will be heavily driven by international students, and I can’t see the government closing our borders or stopping them from entering as they are too important as a funding source for our universities.

If we had fewer international students, the fees for local enrolments would need to rise significantly or the government would need to collect more tax dollars from other sources.

Clearly, neither of these options is politically acceptable, which means we should continue to expect significant massive numbers of international students.

We will also be importing many early career professionals aged 25 to 34.

About half of these will be working in “knowledge jobs” located in and around the CBD of our big cities and the majority of these will be renting for the first years of their residency here.

In general, they will want to live centrally for lifestyle reasons and to minimise their commuting time.

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Eventually, these people will start to couple up and operate as dual-income households, initially without children, but with a lot of spare cash.

We will also be importing many millennials (aged 35 to 51) who will be of childbearing age.

While they may initially live in apartments, millennial families will likely move to urban fringes where they can find family-size accommodation for sale at an affordable price.

Over the next decade, the proportion of older generations - the Gen X and Baby Boomers - will not grow as much.

Being parents of teenagers, many Gen X’s will need larger homes and want to upgrade however, most Baby Boomers will want to age in place.

What if we cease immigration?

Considering how hard it is to solve the housing shortage while we lack workers to build all the additional housing stock, the zero-migration path might sound appealing.

Of course, our country has been built on immigration, and I can’t see that changing, but it makes an interesting intellectual exercise to see what would occur.

In fact, leading demographer Simon Kuestenmacher tackled this question in a recent column in The New Daily

Kuestenmacher explained that in the High Migration Scenario, ABS statistics suggest our population could be 31.6 million in a decade.

But this growth isn't just a figure; it's about expanding urban landscapes, evolving communities, and a growing consumer base driving economic growth.

In the Zero Migration Scenario Kuestenmacher explains the picture shifts dramatically to a population of only 27.2 million.

The decline of 4.4 million might seem advantageous in terms of reduced pressure on resources, but it's a double-edged sword.

Fewer people mean fewer consumers, less entrepreneurial spirit, and a potential decline in cultural diversity that fuels innovation.

As I’ve explained, Australia's current demographic makeup skews younger due to our migration policies.

But in a no-migration future, this dynamic changes with several potential consequences according to Kuestenmacher:-

1. An Elderly Care Crisis:
   Our reliance on migrant workers for elderly care is glaringly apparent. Without these workers, we face a potential crisis in aged care services. This isn’t just a logistical issue; it's about the quality of life for our elderly citizens.
2. Healthcare System Strain:
   The burden on our healthcare system would increase as our population ages, with fewer caregivers and healthcare professionals, many of whom are typically migrants.
3. Construction and Infrastructure Sector:
   Migrants are a linchpin in these industries. Without their contributions, projects could slow down, impacting everything from residential housing to major infrastructure developments.
4. Labor Market Shifts:
   Reducing the workforce by 4.4 million would not just shrink the labour pool; it would alter the entire dynamic of the market. It would potentially increase labour costs, impact productivity, and reduce our competitive edge in various industries.
5. GDP Growth:
   A smaller, less diverse workforce could lead to lower economic (GDP) growth. This impact goes beyond numbers; it’s about reduced economic resilience and adaptability.

Housing and infrastructure: a complicated equation

While a lower population growth could indeed ease the housing shortage, this comes with its own set of challenges according to Kuestenmacher:

1. Reduced Economic Activity:
   Less construction activity means fewer jobs and less economic stimulation.
2. Urban Development Impact:
   Smaller cities and towns may face stagnation or decline, impacting local economies and community vibrancy.
3. Cultural and Social Fabric

Migration enriches Australia's cultural and social fabric. It brings new ideas, cultural practices, and perspectives.
In a no-migration scenario, we risk losing this richness, potentially leading to a more homogenous and less dynamic society.

Embracing a Balanced Approach

As you can see migration is not just a policy choice; it's a vital element of Australia's identity and future prosperity.

While managing migration presents challenges, its benefits in terms of economic vitality, cultural richness, and societal dynamism are undeniable.

So politicians’ tasks should not be to retreat from these challenges but to embrace and manage them for the benefit of all Australians.