Yahoo Finance Immigration inches towards Goldilocks zone and could ease Aussie housing crisis
Net migration is expected to fall to 235,000 people per annum following a surge in population growth.
The surge in population growth that was sparked by the reopening of the international borders in the aftermath of the COVID pandemic is starting to ease.
From a peak net annual inflow of 528,000 people in 2022-23, net migration fell to 395,000 in 2023-24 and is projected to be just 260,000 in 2024-25, 255,000 in 2025-26 and then 235,000 per annum after that.
The return to an annual intake of 235,000 people is lower growth than generally prevailed prior to the pandemic and reflects the government’s acknowledgement of better targeting a broadly appropriate level of migration. But after the extraordinary surge, net migration is settling back to a pace that is not too hot, not too cold but just right.
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These targets are, like all policies, subject to change if economic and other factors emerge but at this stage, the 235,000 level of immigration fits with the unfolding economic conditions.
Looking at the impact of the tap-on-full migration inflows post-pandemic, when the level was too fast, reveals some of the current issues in the economy.
It fed into a shortage of dwellings available for rent, which in turn ended a period where rents were remarkably affordable to one where rents are now broadly in line with wages growth. While overstated, it has fed into a narrative of a housing ‘crisis’.
It also spilled over to higher house prices which have continued to rise, even in the wake of the aggressive interest rate hiking cycle from the RBA and more recently, the upturn in the unemployment rate. Housing affordability is now stretched.
Simply put, the hot demand from high immigration swamped dwelling supply which impacted rents and prices.
'Deluge' of workers meant weaker wages growth
Another aspect of the strong immigration inflows is in the labour market and here the influences are mixed.
On the positive side, there was a deluge of available workers at exactly the time of the skills and labour shortage, which sparked a near 50-year low in the unemployment rate at 3.5 per cent. High migration meant there was a sharp decline in the number of firms finding it difficult to attract workers, both skilled and unskilled, fed in part by the new immigrants supplying their labour to the workforce.
On the negative side, the extra supply of labour had the effect of depressing wages growth, particularly as it coincided with the material weakening in the economy.
Wages growth, which had been miserably weak for many years, did pick up post-pandemic thanks to a range of government initiatives including ramping up minimum wages and other awards through the Fair Work Commission rulings.
In quarterly terms, the Wage Price Index lifted from around 0.5 per cent in the middle of 2021, to 0.9 per cent in 2022 before hitting an average above 1 per cent in 2023.
It peaked at 1.3 per cent in the September quarter 2023, around the time of the historically low unemployment rate, a coincidence that is no surprise.
Since then the growth in the WPI has eased to 1.0 per cent in the December quarter 2023 and then 0.9 and 0.8 per cent in the two most recent quarters.
The reasons for this are the slowing economy and the excess supply of labour driven by the short-term effects of high net migration.
Population surge putting pressure on infrastructure
The other issue, which is a persistent problem for Australian productivity, is the demand the population surge imposes on infrastructure – roads, public transport, school, health facilities, among other items.
This has pressured state governments, in particular, to continue with high levels of budget-busting infrastructure spending as the immigration inflow created bottlenecks and supply problems.
This added to some of the inflation problems of the last two years.
Migration growth easing a 'good thing'
Within all of this, and something that is immutable, is Australia’s humanitarian migration intake. This, rightly, remains unchanged as we do our bit to make life better for people in extreme circumstances.
Like most things in life, there is an optimal level of migration for Australia. The post-pandemic inflow was difficult for many aspects of the economy to digest. It was too high. The fact that this growth is easing back to more normal and sustainable levels is a good thing.
It will ensure the economy is not unduly pressured one way or another as the inflow fits with a growing economy, a better mix of supply and demand in housing and the labour market, yet provides the critical mass and skills to keep the Australian economy on a steady growth path.
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