Australia’s Migrant Intake Must Be Better Controlled, Peter Costello Warns

Former Treasurer and Chairman of the Future Fund, Peter Costello at the Hilton Hotel in Sydney, Tuesday, March 10, 2020. AAP Image/Dean Lewins

Former Australian Treasurer Peter Costello has warned that the current national migrant intake must be managed carefully to find an equilibrium in which a struggling economy is supported without placing upward pressure on inflation.

Speaking at the UBS Australasia Conference on Monday, Mr. Costello drew comparisons between Australia’s current and past immigration levels.

“Australia has always been a migrant country and I’ve always supported immigration. But the levels of immigration now are extremely high,” Mr. Costello said.

“In my day we were 120 [thousand]. Now that is an enormous adjustment for an economy, to bring in 500,000 to 600,000 people.”

Mr. Costello said migration must be calibrated to avoid placing further positive demand shocks on the Australian housing market.

“I’m pro-immigration, but I think it’s very, very important that we do it in a gradualised way, rather than have these huge licks which are putting pressure on the housing market.”

Net migration (arrivals minus departures) have surged over the past 12 months as international students returned to Australia post-COVID-19 and as Labor’s budget opened the door for a greater general intake.

According to the Australian Bureau of Statistics (ABS), the Australian population grew by 2.2 percent to 26.5 million people in the 12 months leading into March, approximately constituting an additional 454,000 people. This population growth was driven primarily by immigration.

The Opposition has criticised the Albanese Government for this trend by drawing a clear link between expansive immigration policy and inflationary pressures.

“The Albanese Government’s Big Australia approach will make the cost-of-living crisis and inflation worse. We all support a well-planned migration program—and that’s the history of Coalition governments,” Opposition Leader Peter Dutton said in the 2023 budget reply.

“But over five years, net overseas migration will see our population increase by 1.5 million people.

“It’s the biggest migration surge in our country’s history and it’s occurring amidst a housing and rental crisis.”

On the one hand, the immigration surge has been engineered to fix a widespread labour shortage throughout the nation and help small businesses who have dealt with slow consumer spending.

According to ABS data, total retail turnover has jumped 11.8 percent between January 2022 and September 2023 in line with increases in inflation.

On the other hand, increased migration has contributed to upward pressure on general prices across the economy.

Although a number of prominent economists and business leaders, including Macquarie Group CEO Shemara Wikramanayake, have said additional migrants will help ease inflationary pressures, the evidence suggests otherwise.

The Reserve Bank of Australia (RBA) is currently forecasting inflation to remain at 4.5 percent until the end of 2023 and not to drop back to 3 percent until late 2025. This is in spite of 13 consecutive cash rate rises in the 15 months since May 2022, in line with expansive migration intakes in the same timeframe.

AMP Chief Economist Shane Oliver believes that the pressure of the immigration tap has long exceeded what is actually needed by the Australian economy.

“We’ve had, particularly since 2005, immigration levels way, way above the level of supply that we actually need”, Mr. Oliver said at the Australian Financial Review Property Summit.

“If you go back to the immediate post-early 90s recession, immigration levels were about 120,000 per annum. Then they jumped to 250,000/260,000 per annum.”

Mr. Oliver touched on the historical pace of immigration relative to that of housing supply.

“If you look at the completions of dwellings, it didn’t really jump up until we had the apartment building boom briefly from 2015 to 2018 and that’s the real issue here. We pump people into the economy and then complain that house prices are expensive.”

Housing Affordability

Rental affordability has plummeted across Australia with an estimated 1.3 million households in need of housing assistance.

The Rental Affordability Index, created and updated by National Shelter—an organisation dedicated to improving housing access and affordability—reveals the cost of renting is outpacing wage growth in almost every major Australian city.

This comes in the wake of record-low vacancy rates across the country. The latest insight from property data analytics company Proptrack revealed that the national vacancy rate hit a new low of 1.02 percent in October.

According to research firm SGS Economics and Planning (pdf), Sydney residents now spend 29 percent of their income on rent. The figures are 28 percent and 24 percent in Brisbane and Melbourne, respectively.

SGS data also revealed how the rental crisis is disproportionately affecting different demographics.

According to SGS, rent in Sydney, Melbourne, Brisbane, Adelaide, and Perth is unaffordable for pensioners, part-time workers, and students. Adelaide is the only city deemed acceptable for single parents and couples currently earning minimum wage.

There is also the issue of climbing interest rates exacerbating the current crisis, with many homeowners dealing with mortgage stress finding themselves unable to refinance.

This is because when banks assess the likelihood of an individual’s loan serviceability, they typically factor in an additional 3 percent on top of existing rates in anticipation of further hikes.