Migration surge set to really hit home | Samantha Maiden

Buried in the April minutes from the RBA is a warning that could deliver a big political and economic challenge for the Albanese Government, writes Samantha Maiden.

The conventional wisdom at the beginning of the pandemic was that closing Australia’s borders and slashing immigration would see house prices tumble.

It made sense. Increasing demand for homes to buy and rent ultimately inflates prices.

But surprisingly, that didn’t happen.

And in part, we can blame the Reserve Bank – again – for being so successful in protecting homeowners from the ravages of the pandemic.

When property firm CoreLogic considered why property values did not tumble, the theory it developed was that low interest rates, home loan holidays and working from home were factors.

“In a bid to stimulate economic activity, the reduced cash rate lowered bank funding costs, leading to record-low mortgage rates,’’ CoreLogic’s Head of Research Eliza Owen explained.

Many who lost their casual jobs in hotels and cafes did not own property while those who were lucky enough to have white-collar jobs could work from home.

And even those that did have mortgages were offered six-month mortgage “holidays” to hang on to the family home.

Fast forward a few years and rising interest rates are squeezing homeowners big time.

While there was a brief reprieve this week, the conventional wisdom is that interest rates have not yet peaked.

And buried in the April minutes from the Reserve Bank of Australia is a warning that could deliver a big political and economic challenge for the Albanese Government in the lead-up to the next election.

Record immigration – designed to address the Covid-19 pause – could lift inflation and result in further interest rate hikes.

“Estimates of population growth had been revised up, owing to stronger net overseas migration”, the RBA minutes noted.

“One was the upgrade to near-term projections for population growth. Members noted that this could put significant pressure on Australia’s existing capital stock, especially housing, which would in turn manifest in higher consumer prices.

“Although higher immigration might reduce wage pressures in industries that had been experiencing significant labour shortages, members noted that the net effect of a sudden surge in population growth could be somewhat inflationary for a period.”

In other words, while more workers could put downward pressure on wages, it will increase demand for housing stocks.

RBA Governor Philip Lowe appears at the Economics Legislation Committee Senate Estimates at Parliament House in Canberra. Picture: Martin Ollman

That’s bad news for housing affordability.

Forget the good intentions of the Albanese Government and state government housing programs. There’s no sign yet of those programs, as well-meaning as they are, even touching the side of the demand in the community for affordable housing.

Of course, there’s lots of positives from migration returning to normal levels.

The removal of COVID-19 border controls has led to a surge in migrants, many of whom are university students.

In the May budget, Australia’s permanent migrant intake was reset to the pre-pandemic planning level of 190,000 placements.

That’s a slight decrease from the 2022-2023 level of 195,000.

The vast bulk of the placements are for skilled migrants, with around one third of places for family migration.

This week, when the Reserve Bank delivered homeowners a reprieve, leaving interest rates steady at 4.10 per cent, the focus was on the risk it could be short-lived because inflation remains too high.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve,’’ the RBA said.

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

Prime Minister Anthony Albanese in Sydney with Indonesian President Joko Widodo. Picture: David Swift

Until now, the Prime Minister has been sticking to the script that he knows Australians are “doing it tough”.

But he’s also been able to rely on the idea that inflation is being fuelled by forces beyond his control that do not relate to domestic policy decisions.

The Liberal Party intends to chip away at that idea in coming months, warning the coming wave of migration will worsen Australia’s housing and cost-of-living crises.

“The Albanese Government’s ‘Big Australia’ approach will make the cost-of-living crisis and inflation worse,” Liberal leader Peter Dutton said in his own budget-in-reply speech earlier this year.

There’s no sign yet of that idea – that the Albanese Government is responsible for the cost of living crisis as a result of domestic policy decisions – has taken hold.

But political honeymoons never last forever.