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Politicians eye off housing market as they consider immigration cut

Written on 10 April 2017 BY

It says plenty about the state of Australian politics that so much policy is viewed through the lens of Sydney and Melbourne housing affordability. With that in mind, the odds of an immigration cut next month are shortening.

The combination of Treasurer Scott Morrison promising to do something about housing affordability in the May budget, negative gearing being off limits, wage inflation remaining stubbornly low, the national unemployment rate stuck in the high fives and the coalition needing to limit the success of minority parties' xenophobia and populism, all make trimming the 190,000 annual permanent migrant places a relatively soft option.

Australia's annual permanent migration intake has been held steady at 190,000 for five years. That's the highest ever in absolute numbers – lending itself to claims of record migration – but it's been a declining percentage of our growing total population for the same period. The separate humanitarian program is to be increased to 18,750 in 2018-19 from this year's 13,750 and there's a once-off program for 12,000 Syrian refugees.

There's also the sense of waiting for the boot to drop. The government has been considering its migration options for a year now. That's how long it's been since the Productivity Commission (PC) delivered its 13-months-in-the-making Migrant Intake into Australia report.

A growing population makes housing more expensive.
A growing population makes housing more expensive.  Photo: Edwina Pickles

The report was released publicly in September, but the government is yet to respond to its 25 recommendations and numerous findings, including: "7.1 High rates of immigration put upward pressure on land and housing prices in Australia's largest cities. Upward pressures are exacerbated by the persistent failure of successive state, territory and local governments to implement sound urban planning and zoning policies."

Note the PC doesn't mention federal government policies exacerbating those same pressures.

It also is careful to offer no advice on what might be the best number of permanent migrant places, comprehensively leaving that to the political juggling act: "The commission is of the view that there is no single optimum for the level of immigration and population. The optima depend on a range of factors — including the potential trade-offs that are made across the three domains of wellbeing (economic, social and environmental) and the policy settings that are in place to address the ramifications of these trade-offs. Balancing these trade-offs entails some element of subjectivity. As such, political judgment, and ultimately public accountability, will continue to be important in shaping these decisions. Such decisions should, nevertheless, be as well informed as possible."

It is a very delicate area. It's six years since the then-shadow Immigration Minister, Scott Morrison, tiptoed around the numbers back when it was coalition policy to ask the PC to come up with some. The then-Labor government was just as vague

The PC report that was eventually ordered in 2015 wasn't the result of the coalition's earlier policy – it was the price of buying senator David Leyonhjelm's vote for the reintroduction of temporary protection visas for asylum seekers. Along with various other loopy policies, Leyonhjelm wanted Australia to auction off our migration places and the PC was tasked with assessing that.  

The PC quickly dissed Leyonhjelm's idea but made other recommendations ranging from doubling the $55,000 charge for parent reunion visas to scrapping the two business investment visa programs – channels for millionaires to in effect buy residency.

Those sorts of recommendations received the headlines when the report was released, but the bigger policy questions raised by the report were left to languish in the grey area that is population policy.

Population is the largely unspoken third arm of economic policy. You could be forgiven for thinking there are only two – monetary and fiscal – but turning on or off the population tap both for permanent and temporary workers can have a large impact on the economy.

At a time when monetary policy is close to its stimulatory limit and fiscal policy is strangled by ideology, rating agencies and a lack of imagination, it's arguable population policy could be the key swing factor.

For example, population policy played a key role in keeping inflation under control when the resources investment boom was in full swing. The tap was opened up to its fullest extent in more than 40 years as our population grew by 2.1 per cent in 2009. (It's now 1.5 per cent.) The mines sucked plenty of workers to the north and west, but we imported people to fill the worst of the gaps.

Migration, both permanent and temporary, helped keep a lid on wages in more areas than mine construction when skill shortages have threatened. More importantly, it has allowed businesses and social services to continue to adequately function. For another example, it has kept our hospitals, nursing homes and country surgeries open. Backpacker visas and the seasonal worker program get our crops picked when Australians aren't prepared to do that kind of hard work for relatively low wages.

Targeted permanent skilled migration and temporary 457 visas fill the gaps in our workforce that allow more jobs to be created. Yes, the many imported IT workers keep wages down in the sector, but without an army of programmers and help desk staff, the rest of business would not function and employ other people.

At the same time, more people mean more demand for goods and services, creating more opportunities for businesses. As the PC report finds, targeting younger migrants with desired skills in effect allows Australia to steal the investment other countries have made in education and training while lowering the average age of our workforce, thereby increasing and prolonging the taxation revenue.

And beyond such measurable numbers, there is the reinvigoration that fresh blood brings to our shores, the fresh eyes that see opportunities and go for them. In the American immigration debate, the disproportionate number of successful companies founded by migrants is commonly cited. That same drive is commonplace here as human beings make the most of opportunities denied them elsewhere.

That Australia's population policy is immigration policy was spelt out by the PC report – along with the observation that the policy was not clear. Hence Recommendation 3.1:

The Australian government should:

  • develop and articulate a population policy to be published with the intergenerational report
  • specify that the primary objective of immigration and the Government's population policy is to maximise the economic, social and environmental wellbeing of the Australian community (existing Australian citizens and permanent residents) and their future offspring.

Australia's immigration and population policy should be better informed through:

  • genuine community engagement
  •   a broad range of evidence on the economic, social and environmental impacts of immigration and population growth on the wellbeing of the Australian community
  •   a published five yearly review of Australia's population policy.

The Australian government should calibrate the size of the annual immigration intake to be consistent with its population policy objectives.

The difficult thing for government is developing an explicit population policy without letting loose the darker xenophobic forces. One of former prime minister Kevin Rudd's more unfortunate moments was saying that he was in favour of a "Big Australia" of 35 million people in 2050. Examined calmly, such a number is not a particularly big Australia, but the phrase was quickly disowned by his successors while the nonetheless kept growth on track to get there.

The politically attractive aspect of announcing a reduced permanent migration intake now is that any necessary skills shortages can be taken care of via temporary visas while the need to be seen to be doing something about housing demand would still be assuaged.

The PC report can be cherry-picked by both anti- and pro-migration campaigners. The overall thrust is in favour of migration for what it adds to the nation, but with the proviso that we need to be better at planning and building for the extra people :

"Immigration, as a major source of population growth in Australia, contributes to congestion in the major cities, raising the importance of sound planning and infrastructure investment. While a larger population offers opportunities for more efficient use of, and investment in, infrastructure, governments have not demonstrated a high degree of competence in infrastructure planning and investment. Funding will inevitably be borne by the Australian community either through user‑pays fees or general taxation."

Uh-oh. "Funding" is not a popular word. It is there again when the extra housing pressure is mentioned:

"There are also impacts on the price of land and housing particularly in metropolitan areas. While this is beneficial to property owners, it increases costs and thereby reduces the living standards for those entering the property market.

"Sound policies around urban planning and infrastructure investment and effective implementation will remain critical in managing the effects of population growth on the environment, and the associated pressures on society more generally. Given that the bulk of infrastructure investment is delivered at state and local levels, the implications for planning, funding and financing capacities of state and local governments should be considered in determining the migrant intake."

Not popular either in some quarters is the idea of reducing local workers' wages when we're not fighting an inflationary boom, but the commission finds it makes little difference except for the impact of temporary entrants on youth jobs:

"A common concern is that by adding to the supply of labour, immigration can reduce the wages of local workers (or displace them from jobs). This concept of displacement is partly a manifestation of a fallacy that there is a fixed number of jobs in an economy. However, with sufficient labour market flexibility, displaced workers will typically seek and find other jobs, although potentially at lower wages than their previous employment. Offsetting this effect is the increase in demand for local goods and services from new immigrants. Immigrants also may complement rather than displace local workers, improving productivity, particularly when filling skill shortages that are restricting the expansion of firms. The extent to which different types of immigrant labour complement or displace domestic labour is an empirical issue.

"Most international studies on the aggregate impact of immigration on the wages and employment of local workers find small (either positive or negative) effects. Invariably, the extent of any displacement depends on the level, timing, geographical location and composition of immigration. It also depends on economic conditions, with high levels of immigration during economic recessions more likely to cause displacement effects, although these dissipate over time.

"More recent econometric analysis commissioned for this inquiry found that, at an aggregate level, recent immigrants had a negligible impact on wages, employment and participation of the existing labour force. Increased risk of displacement is more likely at the lower end of the skill spectrum and in the youth labour market. However, youth labour market outcomes partly reflect weak economic conditions in recent years as well as a longer‑term decrease in youth labour market engagement, in part due to greater engagement with education.

"Nevertheless, there is little doubt that immigration has boosted the supply of youth labour. During 2015, temporary entrants aged 15‑24 years with work rights (students, working holiday makers and temporary graduates) comprised around half of the growth in Australia's youth labour force. It is empirically difficult to identify the impact of immigration on youth labour market outcomes due to the myriad of factors that affect these outcomes, such as the expansion in opportunity for higher education in Australia. Analysis performed for this inquiry was unable to draw any reliable conclusions."

Again, like providing necessary infrastructure, it's a matter of getting the rest of the picture right. And if announcing a trimming of permanent numbers helps the political optics, a government behind in the polls with a rising right wing will be sorely tempted.


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