There are several main drivers of property prices but one of the most relevant and current is the level of immigration. As we explained in our post The laws of under supply and demand, immigration significantly influences demand and this has a strong flow-on effect on prices.

By way of context, if your parents were born in another country or, like 25% of Australia’s current population, you were born overseas; you are an immigrant. In fact, half of Australia’s population now falls into this category.

Our immigration rate recently became a hot button issue. The camp for curbing it have been making their case across the nation. Minister Peter Dutton openly contradicted Prime Minister Turnbull over migration numbers and Tony Abbott argues accepting less people will address housing affordability and other problems. Dick Smith says he’s a strong supporter of immigration but wants it set at “sensible and sustainable levels”— about 70,000 immigrants a year— not today’s 200,000.

Others argue immigration is the critical engine of Australia’s growth and saved us from the 2008 Global Financial Crisis.

The pros and cons of Australia’s record high immigration rate:

 

Advantages

According to a recent Treasury Department report:

  1. Immigration is often seen as the main reason why wage growth barely keeps up with inflation. But migrants generally complement the existing work force, so their impact is not that significant.
  2. 70% of migrants are skilled and working age, helping slow the ageing of our population, and giving the economy and society time to adjust. Young pre-educated people require less health and education dollars.
  3. Immigrants have a net positive impact on the economy — most pay more in tax than they consume in government services.
  4. Migrants are part of Australia’s long term strength and helped us both avoid the GFC and weather the aftermath.

Disadvantages

Those who want numbers reduced argue:

  1. More people coming to Australia means more housing demand. When demand exceeds supply, house prices rise.
  2. Immigration stunts wage growth because more workers competing for the same jobs gives employers more leverage. Downward pressure on wages growth is amplified if migrants will work for less.
  3. Immigration doesn’t create a younger workforce: A Productivity Commission report to Parliament says big increases in migration only modestly affect our ageing population.

Given the considerable attention on Australian house prices, the “right” approach to Australia’s migrant intake continues to be debated.


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