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Australia’s immigration has gone into reverse. Here's what that means

Stephen Koukoulas
·4-min read
SYDNEY, AUSTRALIA - DECEMBER 18: Airline passengers wait in line to check in at Sydney's Kingsford Smith domestic airport on December 18, 2020 in Sydney, Australia. A cluster of Covid-19 cases on the northern beaches of Sydney has grown to 28, prompting NSW health officials to urge residents of affected suburbs to stay home. Traffic at Sydney Airport has increased as people rush to leave the city with several states imposing quarantine restrictions for New South Wales residents. (Photo by James D. Morgan/Getty Images)
The pause in immigration has seen net migration turn negative. More people are leaving Australia than are arriving, and there will be consequences, writes independent economist Stephen Koukoulas. (Photo by James D. Morgan/Getty Images)

The COVID-19 pandemic, rather than a tweak in economic policy, has seen Australia’s population growth fall to its lowest rate in about 100 years.

While there are currently more births than deaths, which feeds into a natural increase in overall population, the effective closing of international borders and the pause in immigration has seen net migration turn negative. More people are leaving Australia than are arriving.

It is by no means clear how long this will last. Suffice to say that a widespread uptake of an effective vaccination will be a minimum requirement before net immigration resumes.

And even when the borders do open, the pick-up in net immigration is likely to be more moderate than the break-neck inflows evident in the couple of decades prior to 2020.

There are some important implications for the economy from this, some of which are good news for those interested in a balanced economy.

More from The Kouk:

Two big issues in Australia are a shortage of quality infrastructure and pressures on house prices.

In simple terms, these problems have at their core rapid population growth which has been driven by high levels of immigration.

The congestion on roads, poor public transport in the big cities, electricity costs and supply and sufficient water are all linked to the number of people using these services. When population grows rapidly, outpacing the construction of roads and public transport, for example, there are bottlenecks, congestion and lost productivity.

Governments react to these pressures with expensive and slow to roll out spending on infrastructure. Costs are inevitably huge and at the end of the day, the amenity of having better roads, trains and buses often takes many people to where they were before the population surge.

With no immigration for a couple of years, infrastructure needs are less pressing. This will ease pressure on government budgets already damaged by the recession and COVID-19 related support programs.

In terms of housing, the robust price gains over recent decades are the result of unrelenting strong demand from new immigrants, relative to the ability of the private sector to construct more dwellings. As hundreds of thousands of immigrants arrive each year, they need a dwelling to live in. Whether they buy or rent is largely immaterial – more dwellings are needed either way.

If housing construction is slow to respond to this surge in demand, prices and rents will rise.

With weak population growth, any new construction adds to supply and places downward pressure on prices. This is likely to be the experience for housing over the next couple of years – weak demand but still solid levels of new construction will see new supply exceed new demand.

To the extent housing affordability is considered a problem, several more years of flat or weak house prices will help.

There is already evidence that the favourable level of housing affordability is having the desired effect. Aided by record low interest rates, first home buyer numbers have increased strongly which should be helping to arrest the decline in home ownership rates.

BRISBANE, AUSTRALIA - JANUARY 07:  Travelers from New Zealand arrive at Brisbane Airport on January 07, 2021 in Brisbane, Australia. Flight NZ147 is the first 'safe travel zone' service between New Zealand and Queensland with passengers exempt from needing to complete 14 days of hotel quarantine on arrival into the state. (Photo by Jono Searle/Getty Images)
(Photo by Jono Searle/Getty Images)

The economic downside of low immigration

It is also clear that immigration has many positive effects for the Australian economy.

Demand for goods and services within Australia increases with population. 25 million people buy more, spend more and employ more than 20 million people. A bigger Australia allows the local business sector to achieve economies of scale and allows they to invest and expand.

The nature of the immigration inflow is important. Australia has generally encouraged a cohort of young people. This has benefits in slowing the pace of aging in the general population and provided a generally skilled, fit and vibrant addition to the workforce.

The above discussion relates only to the economic effects of immigration. There are a range of other issues, including humanitarian, cultural and general well-being effects that are important in a modern country.

Suffice to say, all of these issues need to be weighed up when working out the optimal number and the make-up of Australia’s net immigration intake.

Some have noted that immigration is like a good red wine. None is no fun, too much leaves one with a nasty hangover. There is an optimal amount.

With the COVID-19 pandemic, immigration has stopped.

When it resumes, there should be a sensible and fact-based assessment and analysis of how much immigration is needed to support the Australian economy without blowing up the housing market or pressuring current infrastructure capacity.

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