Should we hit pause on immigration?

Sam Hawley: Hi, I’m Sam Hawley, coming to you from Gadigal land. This is ABC News Daily. By the time the year’s out, the number of immigrants who’ve arrived in Australia in 2023 will have reached up to 600,000. That’s more than the population of the national capital, Canberra. They’re filling jobs, and often bringing a rich cultural diversity to communities. But there is a downside for the economy. Today, the ABC’s business editor, Ian Verrender, on the impact the surge is having on inflation, interest rates and rental prices and what the government should be doing about it.

Sam Hawley: Ian, our borders were closed, of course, for a couple of years because of the pandemic. But since they’ve reopened, something quite extraordinary has happened, hasn’t it?

Ian Verrender: Yeah, I mean, absolutely. It’s it’s been remarkable, really, the the number of people who’ve flooded into the country since borders are reopened have, I think, outstripped pretty much everybody’s expectations. They did have a number there of about 190,000 a year of permanent residents for migration. But the increase in the number of students, particularly since borders have reopened, has taken that to well above 500,000 I think we’re going to clock up for this year. And, you know, it’s nobody knows for sure, but it’ll be somewhere between 5 and 600.

Sam Hawley: Yeah. Wow.

Ian Verrender: Thousand.

Sam Hawley: Thousand. Yes yes yes. That’s about 1200 migrants per day. That sounds like a lot.

Ian Verrender: It certainly is. And, you know, if we did continue at that rate over any kind of extended period, well, over a four year period, for instance, we’d have we’d have another Brisbane on our hands, essentially in terms of the number of people who are involved. So it’s a pretty extraordinary rate of increase.

Sam Hawley: Yeah. And as you say, it’s more than most people expected, including the Treasury. And it is starting to cause some problems, isn’t it?

Ian Verrender: It’s becoming a political issue, I think, out there in the public and also within the Parliament. There seems to be quite a bit of disquiet about it. There’s also a real debate raging in the world of economics and economists about, you know, why are we doing this and what kind of long term impact this is going to have on the economy. You could argue, I guess, that from about not long after the turn of the century, probably around about 2005, we really started to rapidly increase the intake of migrants. If you wanted to be cynical about it, you could suggest that perhaps one of the reasons was to make it look like our economy was growing. Essentially saying, if you and I are in the room and we’re the economy, and then somebody else walks into that room, the economy is just growing by about 50%. Because that extra body has to have a roof over his or her head, will eat, you know, there’s all the services and everything that are required, you know, to to actually make that person function. So simply adding bodies adds to GDP. So it makes it look as though you’ve got a really strongly growing economy. I don’t know how many times you would have read over, you know, up until the pandemic that we were the miracle economy, 30 years of unbroken economic growth.

Archive: As many countries slipped towards recession, Australia’s economy accelerated. Gdp or economic growth for the December quarter was 1.3%.

Archive: And I’m pleased to say that despite some of the sharpest falls in commodity prices since the global financial crisis, the economy grew by a solid 0.5%.

Archive: 9% growth in the March quarter makes us one of the fastest growing economies in the developed world, and faster.

Archive: Australia is in its 27th year of consecutive economic growth.

Ian Verrender: And, you know, everybody was, you know, shouting it from the rooftops, you know, how do you do this? Well, you do it by just importing people. And there’s another measure to look at how well your economy is doing. And that’s simply to strip out the impact of immigration. So what you do is you divide your economic growth by the number of people in the economy. And if you do that, it’s called per capita GDP. You would see that we had quite a number of recessions right through that period. And because what that does is it looks at the welfare of people within the economy rather than just a blunt measure of growth itself.

Sam Hawley: So immigration, it grows the economy. What does it do to inflation? Because of course, that’s what we’ve been talking about a lot during the year. Inflation, interest rates. So what do all these new people do to inflation.

Ian Verrender: Well if it’s done properly. And this is something that the reserve Bank governor, Michele Bullock, made the point of. If immigration is done properly, it won’t add to inflation, because what it does is you’ve got more skilled workers. It means that there’s no shortage of workers if you do it properly, if you make sure there’s adequate housing, it won’t add to inflation. If you do it in a very measured way, it can be extremely beneficial to your economy. And that’s just from an economics perspective. I mean, if you want to look at it from a cultural perspective and, you know, the richness other nations and cultures can bring to Australian society, well, you know, that’s almost impossible to measure.

Sam Hawley: Of course.

Ian Verrender: But, if it’s not done properly, it can cause all sorts of problems. And I think it’s really just a mathematical calculation. Are we bringing too many people into the country at the moment? Because, you know, we don’t have enough housing to house them. And that’s being made very clear by simply what’s happening in the rental market. You know, people arriving here have to have a place to live. They have to put a roof over their and their family’s heads. And we’ve got vacancy rates basically of 1% in the country. It’s an all time low. And that’s why rents are rising at the incredible speed that they’re rising. And rent makes up quite a significant component of the consumer price index, which is the measure of inflation. And so when you get rising rents, you get the CPI rising, therefore inflation goes up. And then the response from the reserve Bank is to push up interest rates.

Sam Hawley: As you mentioned, we do have a richness in this country because of migration. Just tell me then, from what you’ve said, if we then reduce the number of people coming into Australia, would that help ease the housing crisis that we have at the moment and then curve inflation?

Ian Verrender: There’s a whole lot of issues around housing. And it’s not just immigration. I mean, you know, we haven’t built enough houses as it is. We’ve got tax concessions running right through the the economy that boost the price of housing and, and distort decisions that are made around housing. So it’s not just immigration that’s fuelling it. It’s one aspect. Unfortunately, at the moment it’s a big aspect because it’s purely by the force of numbers. Now, you could argue that the number of migrants that we have in the country at the moment would have been at this level if we hadn’t had the pandemic. But economics is never about the level. It’s always about the change or the rate of change. I mean, look, you know, when I was a kid, I lived in Sydney and over the back from where we lived, the government built a hostel. Right. And it was a brand new structure. It was really well done out. And people who arrived in the country, migrants who arrived, were taken off the boat or off the plane and driven around there and said, look, here’s your place. You know, you can stay here for as long as you like until you set yourself up. You get your kids in school, get yourself a job. We don’t do that anymore. We don’t have any facilities whatsoever for people who land here. And they’re all having a hard time finding somewhere to live and look. That’s gets to a broader discussion around infrastructure and infrastructure investment from the government.

Sam Hawley: And as you said, though, we also need to build the houses and we need the people to build those. The Immigration Minister, Andrew Giles, says we need immigrants to fix our skills shortage and we need them to build houses. So would our economy be in a worse state, Ian, without so many migrants coming in?

Ian Verrender: Well, you know, again, it’s not about whether migrants come in or not. It’s about the rate of change. You can bring people in very easily, but it takes a year or two to be able to build a house or even longer to build a block of units. So it’s simply not possible to provide the amount of housing that is required for such a huge intake as we’re having right at the moment. Look on the other side. You’re absolutely right. Bringing people into the country can actually mitigate inflation on a longer term basis, because more people means more competition for jobs and therefore wages will be lower. But on a very short term basis, such as we’re experiencing right now, it’s just pure mathematics, you know, it’s arithmetic if you’ve got, you know, five houses and you’ve got 50 families, what are they all going to do? But there’s a broader question about infrastructure as well here. You know, just it’s not just housing, it’s it’s schools, it’s transport, public transport, roads, all kinds of facilities that are needed to make sure your cities work properly.

Sam Hawley: The shadow immigration minister, Dan Tehan. He warns that the migration surge will have dire consequences. So as you mentioned earlier, it’s becoming very political as well, isn’t it?

Ian Verrender: Yeah, it is. And I mean, I think it’s a bit rich for one side of politics to point the finger at the other because both sides have been involved in this from, you know, around about 2005 on. It’s come to a crescendo, I guess, right now because purely by, by virtue of the fact that the number of people who are arriving and yes, it is a reaction to having nobody come in and actually people leave during the pandemic and they’re all swarming back in now. But both sides of politics have happily taken the kudos for growing GDP and not spending money on the infrastructure that’s required to make sure our economy works well.

Sam Hawley: So, Ian, what’s the best way to handle this debate? Do you think? Because as a nation, we do have a proud track record of migration? We’ve discussed that. But this debate can get a bit nasty, can’t it? At times.

Ian Verrender: Yeah, absolutely. I mean, you know, economists hate talking about this. Everybody just wants to shy away from the issue in lots of ways because you can be accused of being racist or anti-immigration. And that’s not about immigration or or the or the virtues of immigration. It’s simply about the arithmetic and whether or not you can actually, you know, adequately house and accommodate the number of people you’re bringing in at the moment. And I think, you know, we do need to really think about that. Otherwise, you’re going to have a lot of social cohesion problems down the track, because there’s going to be competition for scarce housing, and that’s going to go on for a long time because as I said, you can’t build the houses quickly enough to house the people who are coming in.

Sam Hawley: So what’s the answer, do you think, for the government, what should it do?

Ian Verrender: I think it needs to have a good look at the number of people that are coming in and set limits on it, really. You know, there’s also another argument that I’ve heard from some academics that our universities have been turned into money making machines because federal governments have decided not to fund them. And that means, you know, bringing in huge numbers of students who require housing. And perhaps the federal government should turn our universities back into learning institutions rather than an export industry. So, you know, there’s all sorts of things that you could do, but it does require limiting the number of people to a to a sustainable level.

Sam Hawley: Ian Verrender is the ABC’s business editor. The Reserve Bank board will meet again today to decide the path forward on interest rates, though expectations are they’ll keep them on hold. Last week, we spoke to Alan Kohler on when the great Australian dream of owning a home ran off track. Look for Alan Kohler’s plan to freeze house prices. That’s in your feed. This episode was produced by Nell Whitehead, Bridget Fitzgerald, Laura Corrigan, Sam Dunn and Anna John, who also did the mix. Our supervising producer is David Coady. I’m Sam Hawley. ABC News Daily will be back again tomorrow. Thanks for listening.