Immigration has been driving growth (and housing prices!) in Australia in recent years. But is it sustainable?
Is our political fascination with ‘Big Australia’ possibly coming to an end?
Joe Hockey was on the record last week saying that using population growth (which in Australia really means immigration) to grow your economy is a “lazy way to grow”.
This was a rare flash of sense and reason in the political discourse around immigration. But my feeling is he wasn’t singing of the bi-partisan hymn sheet here.
(Maybe it was a vice-captain’s call?)
Maybe he just slipped up. Because for the past couple of decades, politicians of all stripes have been using population growth to ‘grow’ us out of trouble.
It works like this. The headline economic figure in Australia, and around the world, is GDP. GDP is a measure of how much we produce.
Why do we care? Because the amount of stuff we produce is taken as a proxy for ‘quality of life’. There are a lot of leaps of mental gymnastics required to equate ‘stuff’ with ‘happiness’ – but that’s why we have economists.
The other side of it is that producing stuff requires people to produce it. GDP creates jobs, and we like jobs.
And so GDP is almost the only gauge on the economic dashboard that matters.
But all this comes from a time when immigration rates were pretty steady, and weren’t used proactively to balance the business cycle – which is the reality we have now.
And so now, the link between GDP and quality of life, which was already tenuous, has become even more frayed.
Think of it like this. Imagine you live in an isolated community of 2 people. Every year you produce 200 kilograms of food to share between you.
Then someone wanders out of the forest and joins your community. He’s not as productive as you two, so you only produce 250kg of food that year.
But the GDP of your village has increased from 200 to 250kgs. That’s a massive 25%! Your treasurer is patting himself on the back and getting his portrait done.
But what’s really happened? You now are sharing 250kgs between the three of you. That’s only a bit over 80kgs each.
You’ve had a 20% reduction in your living standards. Not to mention the queue for the bathroom in the morning now, the crowded path on the commute to work etc.
So even though there’s been a big gain in GDP, individual living standards have gotten worse in you little village.
It doesn’t have to be that way of course. Maybe the newbie to the village had skills and tools you never dreamed of. Maybe you produced 500kgs after he came.
The point is that if we only focus on GDP, we don’t actually know what’s happened to our quality of life. We need population data, and GDP per capita, to make it meaningful.
And what’s the story in Australia?
Well, if we add in the population story, it takes a lot of the gloss of the Australian economic miracle.
Or put another way, looking at rolling 10-year averages of GDP growth, GDP per capita is way below, and now at the lowest level in 20 years…
There’s a big difference. Per capita real GDP has risen by just 4.8% since September 2008, versus 15.9% growth in overall real GDP.
And that’s despite a massive mining boom.
Another way to put it is that two thirds of Australia’s growth since the GFC has been a result of population growth. You can see here net overseas migration has spiked in recent years:
So it’s population growth that’s driving the Australian economy. Not productivity, not technology, not digging up rocks, not Aussie ingenuity. Population.
(If you’re not feeling as rich as the politicians tell you you should be feeling, this might be why…)
And all that might be fine if we were investing in the infrastructure we needed to handle surging population. But it’s not clear that we are. Extra population puts further pressure on infrastructure – parks, roads, water etc.
Has anyone noticed these things getting better? Anyone noticed roads freeing up and moving smoothly on their morning commute?
No one?
So if population puts strains on our infrastructure, and actually reduces individual living standards, why do we do it? Who benefits?
Well, big business benefits. Tony Shepherd, former minister for propaganda at the Business Council of Australia, and now chair of the Audit commission was calling for a lift in immigration rates a few weeks ago.
If you own a big business, a growing consumer base is good news. And if there’s more workers there’s more competition for jobs, which puts downward pressure on wages. Win.
And if you catch a helicopter to work you don’t give a stuff about traffic jams.
The other winners are politicians. They get to point to misleading growth numbers, and there’s a short-term boost to revenues. Theoretically this should be fed straight into providing more infrastructure for our growing population – but this rarely happens. That’s a problem for tomorrow.
And the final winners are property owners. We already underproduce. Stronger immigration just exacerbates the housing shortage we currently have in the big cities. And so prices go up.
So as property investors the question is are we going to break our reliance on immigration to drive growth?
I’d argue we should. It’s a bleak, crowded future if we don’t. But for that to happen, a few things need to happen first.
- Our politicians need to turn their back on the short-term, easy and lazy option.
(Stop laughing, this is serious.) - Our politicians need to find sources of growth that are about ‘better’ not ‘bigger’. It’s about innovation and vision.
(Ok, if you can’t stop laughing, at least get up off the floor.) and… - They need to put the needs of ordinary Australians over the demands of big-business.
(Oh no, what, have you wet yourself. Let me get a mop.)
And just for the record, don’t paint me as anti-immigration. I know very well the benefits that a well-managed immigration program can have (The Australian nation is built on it.)
But there’s a big difference between that, and using immigration to palm of our real problems to future generations.
What do you think?
Can politicians really stop the expansion of our population base?
Do they have any influence at all on the property market?
Is it more of a state-based issue rather than federal?
(I’m talking about supply and demand)
Tim says
More infrastructure will not solve the problems of population growth. More roads means more cars, more traffic, more congestion. Technology will provide the solution. Small, one seater vehicles for commuters (Colibri, Lit motors) or driverless cars (Google, Mercedes etc) will enable our roads to be used more efficiently.
Jeff says
Well done Jon for raising this taboo topic for discussion. Better not bigger. Everyone on the ground knows that uncontrolled population growth will destroy the values that make Australia special. Just because so many nations around us have burdening populations should not obligate us to do the same. Time for regualry and sensible discussion. Research indicates that over 70% of Australia’s population want to restrict population growth as they witness the gradual steady decline of living standards for average joe. But again, democracy doesn’t always win.
patriot says
Australia needs to be a smarter patriot to itself and it’s own citizens. Bringing in more people is not the smart answer. There needs to be Australias interests put first, otherwise sustainability will FAIL and is failing in front of our eyes. This is now why it has finally come to attention.
Australia is no longer the Lucky country, look around you, seriously, those golden days are gone! Our sovreignty is where? Our vested interests for our nation are where? Global financial events have consequences if you havent looked after your back yard! What are we doing?
Shirley says
Remember JFK’s speech – “Ask not what your country can do for you, but what you can do for your country”. Why is it up to the politicians to do everything for us? A great proportion of Australians are far too lazy to do anything for themselves or for Australia – they just expect handouts and more handouts. It is the whole attitude of people who just work for the pay cheque at the end of the week, instead of productive employment. This laziness will not help increase the GDP!!
Ian says
Shirley is spot on. And our political system is stuffed – a few fringe dwelling independents (excluding Nick Xenephon) now decide if legislation is passed – and the furthest ahead both sides of politics can see is the next election – so they promise more freebies to the “leaners”. A lot of the left wing media are also to blame. Where are our visionary leaders now – there are none.
John from Perth says
On Q & A last night there was a concensus by the socialist do gooder stacked panel and audience that anyone who manages to save a nest egg for their retirement should have it taxed until they need to get a pension. These people believe it is fundamentally unfair that anyone should be financially better off than pensioners. These are the same people who believe we should flood our country with poor immigrants as it is unfair that Australia is a wealthy country. They also believe negative gearing should be stopped, GST should be increased, companies should be taxed more and that there is no point in assisting young people to get a house as that will push up house prices and make investors better off -and that is to be avoided at all costs. Anyone saving $2m is an absolute wrong and unfair thing. It’s no wonder that our country’s wealth per person is going backwards and our quality of life is being dragged down to make Australia into a broke socialist basket case.
ROB says
I agree with your commend John from Perth. Q & A absolutely infuriated me last night. Not blowing my own trumpet, but I’ve worked my arse off even before I left school. All my friends were taking off overseas and spending their money on anything and everything. Now, unlike them, I own 3 quality properties and they are lucky to own the roof over them. I am sick of all the whinging about this being unfair. What with all the CGT, and land tax I pay, the government is getting it’s fair share from me.
These young people who think of the mum & dad property investors as being greedy, should think again. After all the tax I’ve paid with work and property, never having had ANY handouts from the government, this generation should be thankful that I am funding my own retirement.
I’m sick of all the lazy people in this country whinging about us. What would they like us to be – a communist country?? I say everyone has an opportunity to improve themselves. Get off your backside and work for it like the rest of us have!!!!
Claire Bear says
Couldn’t agree more Rob.
Kathy says
A lot of our politicians are in favour of a “big” Australia because of the coming demographic shift as more and more baby boomers start to retire (from 2011) and we become an “ageing” population. They need more younger people to contribute to the tax base. Particularly as the recent Intergenerational Report shows that over the next 40 or so years the business and worker base will increase by 12% but the amount of people retiring will increase by 36%.
However, is it really wise to increase the population with no real plan considering some small factors like Australia is the driest country on Earth (only Antarctica is dryer)? The existing infrastructure can already not cope with the current population. What will happen when we add to it? What about food security, given we import a lot of our food, quite often without the stringent requirements our own growers must meet?
A bigger population does not guarantee it will be better, particularly if the real engine room of any economy, business, coupled with increased productivity and genuine innovation does not accompany the larger population. No point in having more people if there are no real jobs.
In order to have our cradle to grave welfare system, the new workers and taxpayers need to continually outnumber those leaving the workforce and pulling a pension. So effectively our population needs to double almost every second generation. How long can we continue to do this?
And also, GDP figures, like unemployment, inflation and other “official” figures are likely to be highly suspect.
Firstly, government expenditure is usually included in GDP figures, which is completely inaccurate as governments are merely taxing agents, they don’t actually create anything. Any government expenditure is with money taken from the useful and productive private sector.
And secondly, it only measures output that can have a dollar value put on it. So if I mow my lawn and my neighbours mow their lawn, there is no increase in GDP. But if I mow my neighbour’s lawn and charge them $50 and they mow my lawn and charge me $50, GDP has increased by $100. But has there been any real increase in productivity? No. And that’s why GDP figures can give a completely false indication of real activity in an economy, and which governments use and manipulate to give a better or worse picture of the economy.
What we need are politicians with some real kahunas who will actually take responsibility for the future of Australia over the long term and not just the next three years, and make the hard decisions.
Sadly, I don’t see anything like that happening in our future.
Rudolf Ruyter says
Hi Cathy (& Jon)
The solutions are not really complex.
We just need to stop spending the future now.
Eg. the rocketing retirement pension costs.
Future generations need to be taught a new subject at school….”real life finances”,
and be taught that pensions are no longer a right, but a safety net for those who were not successful in building their own “Alternate Income Stream” (rather than just a Super Nest Egg).
They should be taught that savings plans are vital to life, and that saving comes before spending (save first and then spend what is left over).
Such savings would go into Super, tax exempt.
50% of all such savings would need to invested in Govt. true infrastructure, at respectable but low interest rates, again tax exempt, saving the Govt. the expense of foreign borrowings for “Developing Australia”, and keeping the interest within Aust.
We can not continue to “population grow” to get us out of the future financial cess pool we are leaving future generations. It’s like the world spending big on credit to get out of the GFC. it does not work, it eventually comes home to roost.
Right now we have over 2 trillion$$$ in super savings. Imagine what it will be in 30 years time if we teach our children to do the right responsible financial thing, and stop at least the pension financial drain on our economy.
Then we may not need to eventually populate this planet into oblivion, and consume its finite resources.
Just one idea to discuss…..
Regards
Rudolf
Meg Howe says
Immigrations seems a sensible solution to the aging population problem – either that or us baby boomers will have to work till we drop dead. It would work wonderfully well if we selectively let the “higher quality workers” in – well educated, skilled, young and english speaking. I personally know heaps of people like that who would give their eye teeth to live here but its so bloody hard to get in. And if we ditched the RBA and reinstated our OWN sovereign bank, the money created here would no longer automatically come with inbuilt debt as it does at the moment, and we wouldn’t HAVE to grow in order to pay it back.
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Al says
Even though this is one valid question as part of this countries spiralling problems – “So as property investors the question is are we going to break our reliance on immigration to drive growth?..” all original financial systems created all forms of ‘in-equatable reward for effort’ – an ancient foundation issue and will always remain the foundation of all previous aka existing trading modes/systems and unless that mummified erred foundation is correctly redressed nothing will change, all ‘gold cap’ club members tiered down the much expanded club of modern times have no complaints and deaf ears.
With due respect for … “Is it more of a state-based issue rather than federal? ” IT IS – world based.
Peter from SA says
I’ve said it before, “I don’t think we have seen the true immigration plan that’s to really come”, you can whine or plan for it like a Pro investor.
There is micro and macro economic view points on why all this happening.
There is also different levels of immigration:
– standard immigrant – with skills or no skills but wishing for a chance to immigrate to a better place and search for work (these are ideal).
– immigrants from 3rd world countries having experienced war and atrocities, a lot of these unfortunately are dumped on our streets without the professional help and guidance they need. (these are the ones that future politicians will regret so today’s politicians can trade favors).
– then there’s the temporary immigrants that have come over with 3-5 year Visas, these ones create a problem for the every day Aussie worker competing for jobs. Big industry loves these because wagers stay low and there’s no interest in joining unions. There’s also those government cash subsidies that companies get employing new workers (as long as they stay with the company for 12 months). Companies know they leave with in a few years so it’s a revolving door of cash paid by the tax payer.
Demand for housing will definitely out weigh supply (I can see some cheap developers building ghettos), demand for housing is always good news for the property investor.
What hasn’t been mentioned is there is a large new tenant base growing which will one day surpass the regular Aussie tenant, investors need to understand and maybe adapt to.
Flood gates to immigration have opened and I can’t see them closing any time soon, some say we are too small in population to be guarding such a rich country, some say we need to reach 40-50 million in population to have a strong economy/industry. Yes such growth has it’s problems, I only hope we can deal with the biggest one being selection. Do we welcome workers or ghettos?
Tip: Plan and adapt to whats coming and ALWAYS have landlords insurance.