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While migration contributes significantly to our population growth, the impact on house prices is far more nuanced than many believe.
So before I dive into the real drivers of house price growth, let's set the record straight…
The benefits of migration: more than just numbers
Beyond the misconceptions about housing demand, it's important to recognise the significant benefits that overseas migration brings to Australia.
Migrants contribute not only to population growth but also to the broader economy, culture, and society.
They are an essential part of the fabric that keeps Australia dynamic and competitive on the global stage.
Economically, migrants are often younger and more skilled, helping to fill critical labour shortages across various industries.
According to the Department of Home Affairs, skilled migrants make up about 70% of Australia's total migration intake.
This influx of skilled workers supports economic growth by boosting productivity and addressing skills gaps, particularly in sectors like healthcare, technology, and engineering.
For example, nearly one-third of Australia's doctors and over 20% of its nurses were born overseas, highlighting how migrants are crucial to maintaining and improving our public services.
Additionally, migrants are known for their entrepreneurial spirit, contributing to the creation of new businesses and jobs.
A 2020 study by the Centre for Policy Development found that migrants were nearly twice as likely to start a business as the Australian-born population.
These businesses not only create jobs but also foster innovation and drive competition, which benefits the economy as a whole.
Cultural and social contributions of migrants
Migration also enriches Australia's social and cultural landscape.
Migrants bring diverse perspectives, traditions, and skills that enhance Australia's multicultural society.
This diversity is reflected in the arts, cuisine, sports, and even in the way businesses operate.
It helps to foster a more inclusive and globally connected community, making Australia a more vibrant and attractive place to live.
Moreover, the presence of migrants supports the growth of international ties and trade.
As Australia looks to strengthen its economic relationships in the Asia-Pacific region and beyond, the multicultural workforce and business community play a pivotal role in building bridges with other countries, driving exports, and attracting international investments.
The relationship between migration and housing demand
While it's true that Australia has one of the highest rates of overseas migration among developed countries, this doesn't directly correlate with an increase in house prices.
Migrants tend to rent before they buy, and when they do buy, it's often years after arrival.
Data shows that only about 15-20% of migrants become homeowners within five years of arriving in Australia.
Instead, they settle in more affordable rental markets and typically occupy smaller, lower-cost dwellings, with a large proportion of them concentrated in just a few suburbs of major cities where others from their community live.
Unpacking the real drivers of house price growth
To understand why house prices have surged over the last few years, we need to look beyond migration and consider a broader set of factors.
While the supply/demand ratio is an important factor in house price growth, other factors include the availability of credit, local economic strength, consumer confidence, lifestyle trends, internal migration and the price of money.
Low-Interest Rates: Of course one of the most significant contributors to the recent surge in house price growth was the "once in a generation" property boom we experienced following a number of years of historically low interest rates that fell even further during the Covid pandemic.
Prior to the Covid years, interest rates were already low as the RBA tried to lift our inflation rate and then rates dropped to record lows, bottoming out at 0.1% in 2021.
This reduction in borrowing costs fuelled demand as buyers were able to access more affordable financing, driving prices up across the board.
Supply Constraints: A significant bottleneck in housing supply is a major factor behind the price hikes over the last few years.
Zoning restrictions, slow planning approvals, and limited land releases have created a chronic undersupply of housing.
For example, in Sydney, the average approval time for a new housing project can stretch from 5 to 10 years, causing a severe lag in supply that doesn't keep pace with demand.
Government Policies: Various government incentives have also played a role in inflating demand.
Policies like the First Home Owner Grant and stamp duty concessions have made it easier for buyers to enter the market, often without corresponding increases in housing supply.
These incentives have the effect of stimulating demand in an already tight market, further pushing up prices.
The real culprits
It's easy to scapegoat overseas migration when trying to explain complex economic issues like housing affordability, but it's clear that blaming overseas migration for Australia's housing affordability issues is a misdirection.
Instead, the focus should be on addressing the true drivers of house price growth, in particular supply-side constraints.
To make housing more affordable, policymakers should concentrate on increasing the housing supply, particularly in high-demand areas, and reforming planning laws to expedite the development process.
Migrants contribute far more to Australia than just a demand for housing.
They are a critical part of the economic engine, a source of cultural richness, and a driver of innovation.
Rather than viewing migration as a problem to be managed, it should be embraced as a key factor in Australia's continued prosperity and global relevance.
Photo by Metin Ozer on Unsplash
