How Much Migration Can Australia Absorb?

Australia’s migration debate has become trapped between two extremes.

On one side, any attempt to question migration levels is too readily dismissed as hostility towards migrants. On the other, some propose dramatic cuts without adequately considering the workers Australia genuinely needs.

There ought to be room for a more practical question:

How many migrants can Australia absorb without making Australians poorer or placing intolerable pressure on housing and infrastructure?

That question has become unavoidable.

The Albanese Government has now announced another migration overhaul. It proposes tighter rules for international students, restrictions on visa hopping, limits on extended working-holiday visas and stronger action against overstayers. The Government says these measures will help reduce net overseas migration from about 300,000 towards 225,000 by 2027–28. Reuters

There are some sensible measures in the package. Australia should not allow temporary visas to become an indefinite chain of course changes, extensions and appeals. Nor should people whose visas have expired simply disappear into the community.

But the central problem remains unanswered.

Why is 225,000 the right number?

It appears to be a forecast the Government hopes to reach, rather than a figure derived from Australia’s housing capacity, infrastructure constraints or effect on living standards.

Growth that does not make us richer

High migration produces economic growth almost automatically. More people mean more workers, more consumers, more taxpayers and more government revenue.

That makes the headline GDP figure look respectable.

But increasing the size of the economy is not the same as increasing the prosperity of the people already living in it. If GDP rises by 2 per cent while the population rises by 2.5 per cent, the economy has grown but the average Australian’s share has shrunk.

For a government unwilling to reduce expenditure, rapid population growth is politically convenient. It expands the tax base and helps keep the economy out of a technical recession.

Unfortunately, Australians do not live in “aggregate GDP”. They live on household incomes. They pay rent or mortgages, wait in traffic, seek hospital appointments and compete for increasingly scarce housing.

The relevant question is not whether migration makes Australia’s economy larger. Of course it does.

The question is whether it makes Australians better off.

In recent years, the answer has been far less reassuring. Population growth has helped sustain headline economic growth while per-person living standards have been squeezed. The economic pie grew, but the number of people sharing it grew rapidly as well.

Housing cannot be wished into existence

Every additional person needs somewhere to live.

That statement is so obvious that it should not need repeating. Yet migration policy has often been conducted as though housing supply will automatically adjust to whatever population number Canberra chooses.

It does not.

New homes require land releases, approvals, finance, builders, tradespeople, materials, roads, water, electricity and other services. All take time. Some are already in short supply.

Migrants themselves are not to blame for this. They come under rules established by the Australian Government. The failure lies in admitting people much faster than the country can provide the homes and services they require.

When population growth exceeds housing construction, the result is predictable:

• rents rise;

• vacancy rates fall;

• more people compete for each available property;

• first-home buyers find the market even harder to enter; and

• governments fall further behind in providing schools, hospitals, transport and utilities.

The Government frequently responds that migrants are needed to build the houses. There is some truth in that—but only if migration is carefully targeted towards the actual shortages.

Bringing in construction workers may help increase supply. Bringing in many more people who also need homes, without adding comparable construction capacity, makes the shortage worse.

The composition of migration therefore matters as much as the total.

Migration should serve Australia

Australia needs migration.

We have an ageing population, a low birth rate and genuine shortages in medicine, nursing, aged care, construction, engineering and other specialised fields. A sensible migration program can fill skills that cannot readily be supplied locally and prevent population decline from becoming economically disruptive.

But migration is a policy instrument, not a national objective in its own right.

The program should be large enough to:

• fill clearly demonstrated skills shortages;

• replace essential workers lost through retirement;

• support a sustainable demographic balance; and

• attract people whose skills will add to Australia’s productive capacity.

It should not be used merely to inflate GDP, support an ever-expanding bureaucracy or conceal weak productivity growth.

Nor should businesses be able to rely indefinitely on imported labour instead of training Australians, improving productivity or offering wages sufficient to attract local workers.

A temporary period of repair

Even if Australia eventually decides that a net migration figure around 200,000 is sustainable, it does not follow that this is the correct number today.

Migration has exceeded Australia’s capacity for several years. We are not beginning with a balanced housing market and adequate infrastructure. We are beginning with an accumulated shortage.

That means the appropriate short-term migration figure may need to be significantly lower than the desirable long-term figure.

Think of it as a household that has been spending beyond its income. Merely reducing expenditure to equal income does not repay the debt already accumulated. A temporary surplus is needed to catch up.

Housing requires the same logic.

For a period, Australia must build substantially more homes than are required by population growth. Only then can vacancy rates recover, rents stabilise and the accumulated shortage begin to fall.

Once that repair has occurred, migration could rise to a sustainable long-term level—provided housing and infrastructure are keeping pace.

Start with capacity, not a political target

The Government’s proposed figure of 225,000 may prove too high, too low or approximately right. But it should not be accepted simply because it appears in a government forecast.

A credible migration policy should begin with measurable constraints:

1. How many homes is Australia short today?

2. How many new homes can realistically be completed each year?

3. How many homes are required for natural population growth?

4. How much migration can be accommodated while still reducing the housing deficit?

5. Which skilled migrants would increase Australia’s productive capacity rather than merely add to demand?

Social cohesion and the importing of overseas hatreds are also serious concerns. The increasingly visible demonstrations in Australian cities have understandably sharpened public unease. But that is a separate discussion involving not simply the number of migrants, but whom Australia selects and what it expects of those who settle here.

For now, the numerical principle should be straightforward:

Migration should not exceed Australia’s capacity to house its population, provide essential infrastructure and improve—not dilute—living standards.

The Government has announced another set of migration adjustments. What it has not provided is a convincing calculation showing why its preferred figure is sustainable.

In the next post, we will attempt that calculation. We will examine Australia’s existing housing shortage, the number of homes we can realistically build, the housing required for natural population growth and the skilled migration Australia genuinely needs. From those numbers, we should be able to estimate a temporary migration ceiling that allows the housing shortage to shrink rather than continue growing.

That is the calculation we will be presenting in the next post in this series.

Further reading

• Has Multiculturalism Lost Its Way? — The difference between welcoming migrants and abandoning the expectation that newcomers integrate into Australian society.

• Tony Abbott’s Warning on Multiculturalism — Why mass migration without integration can weaken social cohesion and shared democratic values.

• Never Again Starts Here — The case for confronting antisemitism and the deterioration of social cohesion in Australia.

The first two are the closest fit. The third supports the brief reference to imported hatreds and the highly visible deterioration in social cohesion.