What will life be like in a smaller Australia [video]

Australia won’t see high population growth at pre-COVID levels for years.

This is a problem for many sectors.

Our education system is underwritten by international students, our residential construction sector depends on a steady stream of new residents needing to be housed and all the highly skilled jobs that our economy created couldn’t possibly have been filled by the locally available workforce.

In May Alan Tudge in his role as the Minister for Population, Cities and Urban Infrastructure said that net overseas migration for 2020 will be zero.

The Prime Minister threw around the number of 34,000 net new migrants for next year – that would be 2021.

Small Australia, here we come?

Let us understand how much smaller than expected our Small Australia might be

Officially about 60 per cent of population growth is due to migration.

This figure is closer to 75 per cent when considering that many of the children born in Australia have at least one migrant parent.

Research also shows that in times of economic uncertainty fewer births are recorded.

The remaining 40 per cent of growth came from natural increase – population growth due to more births than deaths.

The highest natural increase of 162,000 was recorded in 2013.

Since then that number declined every year until we reached 139,000 in 2019.

The 2020 figures won’t show the real impact of COVID as there is a natural delay of about nine to ten months for changes in the birth rate to register in data.

Does this mean that starting with 2021 we will see really low number of total births in Australia?

Probably not.

During the 2020s the big millennial cohort are reaching the family formation stage of the lifecycle and will have babies while the big baby boomer cohort will still be healthy during the 2020s.

Even in the years before migration will pick up again, we will see the Australian population grow due to natural increase.

Our Small Australia won’t be that small, but it will be much smaller than we expected

Ideally an economy operates with an unemployment rate of around four to five per cent to ensure that capable labour is always available.

Australia was pretty close to that ideal rate for the better part of this millennium.

We therefore ran a skilled migration program aimed at importing qualified workers to fill the new jobs the economy created while roughly maintaining the ideal unemployment rate.

I will let economists argue whether COVID pushed the real unemployment rate to 15 per cent or closer to 20 per cent.

Fact is that in times of high unemployment we don’t have the need to import labour as there is enough local talent available – this will naturally change once the economy reaches pre-COVID levels.

During the recovery years there are a few industries that will be especially impacted but not all is doom and gloom though.

Mining, health, public admin, warehousing, utilities, telecom, and agriculture should be able to grow even in times of slower population growth.

Collectively ownership of dwellings, construction and real estate services make up 19 per cent of Australian GDP.

Lower population growth means fewer buildings of all sorts will need to be constructed.

Government on all levels is all to aware of the importance of the construction industry.

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Infrastructure projects have been brought forward to soften the fall for the construction industry.

Median house prices and rents will fall in most markets

Great news for millennials who managed to maintain their incomes during COVID and finally want to become first-home owners, terrible news for retirees who rely on rental incomes or whose only real asset is the family home.

We will see higher vacancy rates in residential real estate.

These high rates will be driven by empty 1- and 2-bedroom dwellings.

Since millennials will seek 3- and 4-bedroom homes to fit their new families and potentially a separate room for the inevitable working from home room.

If not managed pro-actively, slowed population growth can leave us a poorer country, can leave us with an aging population who we can’t afford to pay decent pensions for.

A quick look at Japan might lighten your mood.

The population growth rate has been declining in Japan for five decades and since 2013 the nation has even been shrinking.

All the while Japan managed to grow its GDP.

Low birth rates, an aging population, and an unwillingness to allow a high level of skilled migration meant Japan needed to change their social contract and readjust their economy to achieve economic growth.

Women traditionally stopped working once they married.

Now Japanese women are increasingly integrated into the workforce.

Japan also transitioned their economy into future focussed high-tech sectors and invested heavily into automation and robotics.

These transitions didn’t come easy, but they were pushed through.

Australia isn’t Japan but there are lessons to be learnt

In Australia we already have a high share of women in the workforce.

But after childbirth women only return to the workforce in a limited part-time capacity.

If we wanted to grow our economy with lower migration figures we will need to invest into universal free childcare to ensure a higher full-time employment rate for mothers.

We also need to ensure our economy is structured for the future.

Income from mining will help our economy in the short-term but parallelly we should invest into the next generation of energy through research and prototype power plants.

This means we must train our workers better. Free TAFE and compulsory regular upskilling might be on the books soon.

Property investors during the recovery will want to own an asset that will see increased demand.

In the last decade that rang true for almost any property.

Now the winners are harder to pick.

Invest in a property that a young family might want to spend their next 20 years in.

This way you capture the largest growth cohort in Australia.

In practice this suggest the investment in larger rather than smaller assets.

Originally published in The Australian on 16 August 2020  This version has been slightly revised to focus a bit more on the property sector.