Emotive migration debate now totally unmoored from reality

The anti-immigration rally in Hyde Park. Picture: Thomas Annetts

Views on immigration in this country are becoming increasingly polarised.

Leading conservatives, including Andrew Hastie, are calling for a big reduction in our migrant intake, pointing to the almost one million people who have entered this country (reflected in our net overseas migration numbers) since July 2022.

This is gaining popular traction. Rapid immigration is now rivalling the cost of living as the public’s top policy concern, prompting large protest rallies in our major cities in recent weeks.

Yet, despite this, many of our political, bureaucratic and educational leaders are unwilling to discuss the issue, with some labelling immigration sceptics as racists or populists. This dynamic is not a healthy one for our country.

As the temperature rises, the debate – if we can call it that – is becoming increasingly emotive and unmoored from reality, with both sides guilty of overreach.

In the interests of rationality, let’s try then to dispassionately examine the issues.

Three economic questions stand out.

The cost of Australian housing has increased since the pandemic. Picture: iStock

Is immigration the major cause of rising house prices and rents since the pandemic? Is it exacerbating supply constraints across the economy, including in the areas of transportation, education and health. And is immigration to blame for our poor productivity performance and declining living standards in recent years?

While there is strong evidence of a link between immigration and rents in parts of the country, its impact on house prices is far less clear.

In the year to September 2023, temporary migrants accounted for more than 90 per cent of net overseas migration to this country, most of whom were students.

The vast majority of this cohort rents rather than buys, which helps to explain the strong positive correlation Cotality (formerly CoreLogic) has found between where migrants choose to live and local rental rates, at least in the short term.

On the house price question, a debate is taking place between those who blame immigration for rising prices and others who point to the adverse effect zoning restrictions and other factors are having on housing supply.

While both sides make legitimate points, they ignore the elephant in the room: the interest rate policies of the RBA board.

When the pandemic hit in early 2020, net overseas migration fell off a cliff and for much of 2021 was actually negative. Yet between late 2020 and early 2022, average house prices grew by a whopping 22 per cent.

The culprit? The rock-bottom cash rate the RBA board maintained across this period, in which the average mortgage rate fell to 4.55 per cent in March 2020 and stayed there in 2021.

Decisions made by the RBA and its then-governor Philip Lowe during the pandemic contributed to a 22 per cent increase in house prices. Picture: Getty Images

Do high levels of immigration exacerbate supply shortages across the economy, as some critics claim?

It is true that immigration adds, at the margin, to congestion on our roads and the demand for public education and health services, but it is also alleviating labour short­ages across the economy, including in childcare centres, aged-care facilities, the retail sector and in a number of trades.

These are two sides of the same coin, a fact immigration opponents and supporters like to ignore. The effect of immigration on wages, productivity and our living standards has long been debated by economists.

When considering this question, we should disregard the fallacious notion that the economy is a fixed pie to be shared between those who live here.

According to this view, immigration must necessarily reduce wages (or increase unemployment) and shrink GDP per capita. This is not the case.

Immigrants will depress the wages of some workers (those in direct competition with them for jobs) but raise those of others (including those in complementary roles); at the same time, some consumer prices will fall and others will rise, depending on where immigrants work and what they consume. Immigration’s impact on productivity will turn, in part, on the skill profile of the immigrants themselves (and the domestic jobs they fill), but it is not that simple.

A larger labour force will provide greater scope for specialisation, which will boost productivity, yet if the nation’s capital stock does grow commensurately, this benefit might be diluted. The key point to make is that immigration is not a major determinant of our productivity performance, good, bad or ugly.

It pales into insignificance compared with our self-harming energy policies, our union-dominated industrial relations arrangements and our anti-aspiration tax system. If immigration’s critics are sometimes guilty of over-egging their case, they make legitimate points that need to be addressed.

They have also drawn attention to a structural flaw at the heart of our system which, in my view, is undermining public confidence in it. It is our educational export industry, which has hijacked our public universities for private gain, earned its billions on an implicit promise of permanent residency and seen educational standards in this country plummet.

This should be heavily scaled back, starting with our major universities. If that results in labour shortages, let them be filled by a dedicated short-term immigration program while we work on getting welfare-dependent locals back into the workforce.

A net-zero immigration policy would be as big an economic disaster as our net-zero emissions commitment is proving to be. If our elites refuse to respond to legitimate concerns about our program, that is what we might end up with.

David Pearl is a former Treasury assistant secretary.