The Albanese government looks set to boost Australia’s annual cap on permanent migration from 160,000 to as high as 200,000 at this week’s Jobs and Skills Summit. Victorian Premier Dan Andrews has now backed the plan. But without a corresponding plan to boost housing supply, increasing migration risks adding to Australia’s housing affordability woes, hurting low-income renters the most.
Australia’s migration policy is its de-facto population policy. Increasing its permanent migrant intake will boost Australia’s population, and housing demand, in the long term.
The problem is that rents are already surging, and many of Australia’s most vulnerable are suffering as a result. Less than 1 per cent of rental properties are currently vacant – the lowest level on record. The typical asking rent on a new property is up nearly 14 per cent nationally over the past year. The regions are not immune either, with the work-from-home revolution driving an exodus from the cities, pushing many in regional areas into acute rental stress and homelessness.
Not surprisingly, Australia’s population growth slowed sharply during the COVID pandemic thanks to international border closures – over the past two years 200,000 households that otherwise would have migrated to Australia didn’t come.
But this temporary pause in migration did not free up housing stock. With many people feeling the need for more living space during the pandemic, the average size of households shrank. The Reserve Bank of Australia estimates that this trend created demand for an extra 140,000 homes, thus offsetting the fall in population growth. And now that borders have reopened, population growth, and housing demand, is expected to rebound sharply.
Housing demand from extra immigration shouldn’t lead to higher prices if enough dwellings are built quickly and at low cost. But housing construction hasn’t kept up. Reserve Bank researchers estimated that the high migration in the first decade of this century saw housing rents rise 9 per cent higher by 2018 than they would have been if population growth had stayed at 2005 levels.
We estimate that increasing the annual migrant intake by 40,000 a year would, over a decade, push rents up by up to 5 per cent. Lower-income renters would be hit hardest.
Migration provides big benefits to the Australian economy – not least since skilled migrants pay much more in taxes than they draw on in services. Grattan Institute modelling suggests that increasing the size of the permanent intake from 160,000 to 200,000, and allocating those extra visas to skilled workers, could offer a $38 billion boost to federal and state governments combined over the next decade. That’s as large a budget saving as abolishing negative gearing and halving the capital gains tax discount.