High immigration levels drive Australia’s high rental rates. According to ABC news reports, the country expects up to 600,000 arrivals in the calendar year 2023, and if this level continues in the next four years, it will prove unsustainable.
The article cites the Australian Bureau of Statistics data, which shows that rental growth has been the fastest in the last 14 years and is a key factor in driving inflation.
The Bureau warned in April that the rental market could influence households’ consumption and savings patterns and inflation. Hence, it will make sense to scale back the number of migrants to lower the inflation rate and soaring rental prices.
Rising Rents
Immigration drives the demand for more housing amid the country’s housing shortages. Housing shortages are also driving up housing prices, and rental prices are moving in parallel to it as more people are priced out of buying homes.
Data from PopTrack, Australia’s trusted property valuator, shows that rents have been soaring for most of the past year, and vacancy rates are at 1.1%, a historic low (Verrender, 2023).
The ABC article notes that fast-rising rent elevates overall inflation and affects a significant portion of the population and its budget. The country’s high immigration rates create victims; a third of Australians in the rental market struggle to cope with the “onslaught of higher interest rates and super-charged living costs”.
A country of immigrants
Peter Costello, Australia’s outgoing Future Fund chair and sovereign wealth fund manager, says Australia has always been a migrant country and supports immigration. Still, its current levels of migration are putting pressure on infrastructure and inflation.
Australia’s current immigration levels mean it must build another 200,000 homes. He argues that immigration needs to be gradualized because a massive influx of them is putting a strain on the housing market (Yeats, 2023).
Doubling down on dumb strategies?
By relying on population growth rather than an increased investment to grow the economy, Australian policymakers are “doubling down on a dumb strategy,” says renowned macroeconomist Gerard Minack. The chronic lack of investment in Australia’s infrastructure, relative to its population growth, has been “massively detrimental to living standards” and will result in declining productivity, Minack pointed out (Shapiro & Read, 2023).
Infrastructure investment needs to keep pace with population growth
Immigration soared in September 2023, reaching a record 500,000 people as international students and working holidaymakers returned en masse, contrary to the official forecasts that migration will sharply decline in the following year.
The massive flow of people back to Australia has significantly strained its already congested suburbs and overworked infrastructure.
For the government to keep at pace with the country’s annual population growth of 2%, it needs to devote around 6.6% of its GDP to infrastructure investment – building schools, roads, hospitals, and housing, to keep up with population growth which Minack says the country fell short in the last 15 years.
For Australia to manage immigration in a way that minimizes inflation and high rental rates, a multifaceted approach will be required, including, among other things, investing in infrastructure, encouraging regional migration in areas that could spread population growth, which can alleviate pressures in major cities, and prioritizing skilled migrants to boost productivity and innovation and increase housing supply.
Australia can manage immigration effectively by balancing economic growth through immigration and investing enough in infrastructure and housing to support population growth needs.
New Zealand, Australia’s neighbor country, is also facing a very similar set of challenges and issues.
Source:
Verrender, I. (2023 November 21). The uncomfortable truth about record high immigration levels, rents and inflation. ABC News. Retrieved from https://www.abc.net.au/news/2023-11-21/the-uncomfortable-truth-about-immigration-rents-inflation/103128424
Yeates, C. (2023, November 13). Peter Costello warns of the dangers of high immigration. The Sydney Morning Herald. Retrieved from https://www.smh.com.au/business/the-economy/peter-costello-warns-of-the-dangers-of-high-immigration-20231113-p5ejjh.html
Sharpiro, J., & Read, M., (2023, November 22). Australia is ‘doubling down on a dumb strategy’ with high migration. Financial Review. Retrieved from https://www.afr.com/policy/economy/australia-is-doubling-down-on-a-dumb-strategy-with-high-migration-20231122-p5elyh
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