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?
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)