Think closing our borders would fix the housing crisis? Think again.
Eliminating migration for the coming decade would actually leave property prices 2.3% higher by the mid-2030s, according to economic modelling by KPMG; and there are other negative economic consequences too.
The temporary post-lockdown surge in net migration is now on the wane, but it appears to have left behind a heightened level of national sensitivity to the issue.
For example, a survey by JWS Research from November last year suggested 78% of Australians thought housing access and affordability was now a “national crisis”.
That’s hardly shocking.
What was perhaps more surprising was that 67% of respondents agreed with the statement that Australia should reduce its migration intake to reduce pressure on the housing market (70% backed the other option of providing incentives for people to move to the regions).
Graph of annual growth in Australia’s population
These may be leading questions, but it shows how Australians are ready to blame immigrants for their various woes – particularly when it comes to emotive issues such as housing.
The right of politics has been keen to exploit these concerns, especially given the Albanese government’s unwillingness to articulate a longer-term strategy for migration.
The chief economist at KPMG, Brendan Rynne, shares the consensus view among economists that migration has been good for the Australian economy.
In an ageing society with a productivity problem, migrants are typically younger and better educated, and they bring new skills and ideas.
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As a thought experiment, Guardian Australia asked Rynne to model the impact of reducing population growth to just births minus deaths over the coming decade.
In this scenario, the population would grow at about 0.4% a year, instead of the predicted rate of 1.3% with migration.
As a result of this change, there would be 29 million residents by 2035, instead of 31.2 million.
That’s 2.2 million fewer people in this “no migration” scenario.
Unsurprisingly, the economy with closed borders is 2.4% smaller in a decade’s time than one with migration, the model shows.
On the other hand, a smaller labour force means employers have to compete harder to attract workers.
That means wages would be 7.5% higher after 10 years of no migration, and the unemployment rate would be 0.2 percentage points lower than the base case.
Rynne said his modelling suggested “pulling back population growth to just natural increases for the next decade is not a great outcome for Australia”.
“Would it be diabolical? Not really. But the point is losses start to become wider at the end of the decade so the longer you maintain the hardline approach to population growth the worse it becomes over time.”
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In fact, with Australian women having 1.6 children on average – lower than the replacement rate of 2.1 – the population would eventually begin to shrink, threatening the economic stagnation that haunts countries like Japan and Italy.
Then there’s the budgetary impact.
Lower population growth would seriously damage our capacity to pay for the essential services Australians demand, especially as they get older.
Instead of approaching a balanced budget by the mid-2030s (as is the current projection), the deficit widens to $87bn, according to the Parliamentary Budget Office’s build-your-own-budget tool.
Total debt surpasses $2tn by June 2035; $437bn more than in a world where net migration continues as expected.
And house prices?
As mentioned, they are cumulatively 2.3% higher in a decade’s time, the modelling shows.
That’s because, Rynne says, the lower demand for housing is overwhelmed by the drop in the number of workers available to build homes.
And higher wages also means higher inflation, which gobbles up the benefits of more pay.
These are obviously stylised results, but they paint the picture of how slashing migration would flow through to growth, housing, the workforce and the budget.
Migration is not the cure to all our economy’s ills, but in the long run a well managed program does more economic good than harm.
Patrick Commins is Guardian Australia’s economics editor