Is the record level of migration fuelling inflation and the rental crisis?

Rye Yang came to Australia in search of a new life, but didn’t have the best start.

“I have never in my life experienced anything remotely as hard as finding a place to stay in the Australian rental market,” the American migrant, who arrived in Melbourne in June, told The Business.

“It is orders of magnitude more challenging than the United States to find a place here.”

Rye and their Australian partner put together a spreadsheet to keep track of over 100 suitable properties. They inspected about 60 properties and applied for about 30.

It took them several months to find this small apartment in Melbourne’s east, and have just moved in.

“It’s a full-time job when you’re going out to do these inspections day after day,” they said.

“But between my visa status and not being able to find a job immediately, many property agents were not willing to even consider us as applicants.”

A shot of a busy Melbourne street with pedestrians in front of a tram.
The subject of whether migration might impact inflation has been in focus in recent weeks. (ABC News: Danielle Bonica)

The record-breaking level of migration has triggered a public debate around its impact on Australia’s inflation problem and a full-blown rental crisis.

The latest data from the Bureau of Statistics show the population grew by 2.2 per cent to 26.5 million in the year to March, with net migration reaching a record 454,400 for the period, twice the amount of the decade average.

More than 500,000 people are expected to come into Australia this calendar year.

Although that largely reflects a catch-up effect after international borders were shut due to the pandemic, which saw a plunge in migration levels, the now rapid growing population is having noticeable effects on the rental market, which could make the job of the Reserve Bank to curb inflation harder.

A topic that’s giving Rye “conflicted” feelings.

“I am a skilled worker who’s bringing value and looking to really integrate into culture here,” they explained.

“On the other hand, I do really feel for Australians who have been negatively impacted by the rental and housing crisis.”

Views that record immigration puts pressure on inflation

Former treasurer in the Howard government and outgoing Future Fund chair Peter Costello said in a recent speech that while the current pace of migration benefitted the economy, it put pressure on inflation through the rental market.

“Australia has always been a migrant country and I’ve always supported immigration. But the levels of immigration now are extremely high,” he said earlier this month.

“I’m pro-immigration, but I think it’s very, very important that we do it in a gradualised way, rather than have these huge licks that are putting pressure on the housing market.

“Rents a big driver of inflation, so [immigration] is good but it’s got to be managed in a careful and considerate way.”

Australia’s inflation rebounded in the September quarter, with fuel (up 7.2 per cent), rents (up 2.2 per cent), new dwelling purchases (up 1.3 per cent) and electricity (up 4.2 per cent) contributing the most.

While the annual growth in rents was the largest since 2009, at 7.6 per cent, the ABS said it would have been worse (up 2.5 per cent) without government intervention of Commonwealth Rental Assistance.

The bureau also warned back in April that rents account for about 6 per cent of the Consumer Price Index (CPI), making it the second-largest contributor to the index.

‘Only part of an inflation story’ but affects rents

It is an issue that has concerned the Reserve Bank of Australia (RBA) and been central to interest rate decisions.

In April, board members discussed the difficulties rapid population growth may present in reducing inflation.

“Members noted this could put significant pressure on Australia’s existing capital stock, especially housing, which would in turn manifest in higher consumer prices.”

A man in a navy suit sits inside an apartment.
Chris Richardson is a leading Australian economist. (ABC News: Daniel Irvine)

Independent economist Chris Richardson, however, cautions that record immigration “is only part of an inflation story”.

“I will be more worried about immigration and the impact on housing than I am around immigration and the impact on inflation,” Mr Richardson, who has previously worked for the International Monetary Fund and the Australian Treasury, told The Business.

“Think of all those skill shortages that Australia was having, that was part of the inflation story, and a whole bunch of migrants has reduced the skill shortages problem.

“In some ways, migration is making bits of inflation, less of a problem. In some ways, it’s making bits of inflation more of a problem. Rents is something where it’s more of a problem.”

CoreLogic's head of Australian research Eliza Owen at her office desk.
Eliza Owen says migration might not have as much of an effect on inflation as it adds to both demand and supply in the economy. (ABC News: John Gunn)

CoreLogic’s head of research, Eliza Owen, said rents have gone up significantly at a pace that “we have not seen for a very long time”.

“Throughout the 2010s, average annual growth in rent values was only about two per cent a year. And at the latest recording CoreLogic is noting about 8 per cent growth over the past year,” she said.

“Cumulatively, rent values have increased around 30 per cent since the onset of the pandemic in March 2020.”

Ms Owen said a range of factors have sent rents soaring on the demand side, such as reduced household size, a decline in home ownership and a lack of social and affordable housing, and not just because of the current migration levels.

Fixing housing is the key

In its November statement on monetary policy, the RBA noted housing supply has not kept pace with the increased demand for housing.

“The result of a decrease in average household size since the beginning of the pandemic, robust nominal income growth and the increase in population growth,” the RBA pointed out.

“Advertised rents have increased 30 per cent since prior to the pandemic, much more than the increase in CPI rents so far.

“Together with historically low vacancy rates, and little sign that tight rental market conditions will ease in the near term, this is expected to keep rent inflation elevated for some time.”

The central bank also concluded that overall the population growth was not adding to inflation pressures.

“The supply and demand effects of stronger-than-expected population growth appear to have roughly offset in aggregate, while helping to alleviate labour shortages in specific sectors, such as hospitality,” the RBA argued.

“This has helped to contain wage pressures in some affected industries and geographic areas, though increased migration has not materially affected aggregate wages growth.”

The frame of a house under construction.
The chronic shortage of housing has pumped up the demand for rental properties – and, in turn, weekly rents. (ABC News: John Gunn)

Mr Richardson said the more urgent issue here was to fix housing.

“It’s not that we’ve messed up migration, it’s that we’ve messed up housing, but we’ve messed up housing so much. And the fix to that is so slow,” he said.

“Even if you’ve got perfect policy tomorrow, it will take many years longer than a decade.

“That is incredibly challenging on a range of fronts. The ultimate fix lies in housing and yes, in my backyard. In the meantime, though, we may need to pull back a bit on the pace of immigration.

“There’s potential around dropping back the number of foreign students studying here.”

Last week, RBA governor Michele Bullock endorsed the importance of Australia’s immigration program, but with a subtle caveat.

“Immigration, I think in general, is a good thing for Australia. It’s always been a good thing. Obviously, there’s contention for housing and things that the government has got to think about, but the concept of immigration in and of itself, I think, ultimately is a good thing – if it’s run well,” she said at the Australian Business Economists dinner.

The federal government is due to release the Migration Strategy by the end of the year, which will give some more indications on how the government views the impact of migration on inflation and housing.

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8 Comments

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  1. No doubt we need a level of migration, after all this country was built on the back of it and the annual intake will vary, based ( hopfully) on ecenomic, social, and humanitarian factors.

    While the vast majority of intakes have assimilated very well to our national values and beliefs one could understand if there is now a high level of confushion among recent immigrants regarding just what are those “values and beliefs”.

    We now witness a Nation almost torn apart by Woke social engineers, minority pressure groups, and now imported ethnic and religious hatred promoted some times by 3rd. generation citizens. All this in the name of “Freedom Of Speech and a Open Democratic Sociery”
    Sadly, the very things that are supposed to bring us together in a common national bond seem to be tearing us apart.

  2. Bakka is right. We are being torn apart by wokeness, ethnic and religious hatred. Not sure if that is imported or home grown. Add to that the oversupply of “public servants” (yes the quotations marks are there for a reason) trying to legislate it all.
    I (an immigrant) personally am in two minds. I emigrated here back in early 80s after having had to prove that my skills were required for the job that I had lined up. Back in those days it was easy to find jobs and rentals, and costs felt much lower that the rest of the developed world. I took Aussie nationality as soon as I was eligible as I thought I was onto a good thing.
    Since then everywhere I have lived has been getting busier, it is as though councils and governments have a real desire to get more and more people, with utilities always lagging behind demand. Little old peace and quiet loving me has moved away to quieter places. Why is it that we have to have more people living in places? Some residents move to the small towns because they like small towns.
    But I can’t shut it down as I am an immigrant too,. I’d really be interested in the net migration, – how many are leaving?

  3. Hungary is one country that decided that instead of relying on immigration it would encourage its own people, financially, to have more children. Its success is downplayed here in favour of Australia importing an instant workforce (followed by family reunions of less productive immigrants), creating an immediate demand for housing and its infrastructure and an increase in your parties potential political supporter base.
    Our daily news is now showing how well we can see this is working.

  4. My statement to the federal government is “Get your own house in order first”. What Albanese is suggesting, 500,000 immigrants is just plain stupid. The pressure it brings on the current Australian population is enormous. For some unknown reason the RBA thinks to improve our current situation of inflation is to keep putting inflation up. For the life of me, this is a very lazy and thoughtless way to save those of us who are really struggling to survive, whether it be the lack of rental accommodation or the inflated cost of accommodation, the continually rising costs of energy, fuel, home mortgage, food, health, schooling all of which have a major effect on inflation. To allow 500,000 immigrants into Australia puts far more pressure on the government/s to accommodate into Australian society only intensifies the existing problems. I also think that in future the government must be more selective of the people we want to live and become part of Australian society.

  5. For the current generation(s) living here NOW and a lot are doing it tough, I would suggest our Government take a VERY HARD look at what is really essential for our economy etc for the total current population. If it would help the folk REALLY struggling at the moment, could it help, directly or indirectly, to hit the ‘pause’ button for even a short time ?? If so surely we owe to them.

  6. Of course immigration is a big,big part of the problem. All immigration should be stopped until we catch up on housing/ hospitals ect. I shake my head at the stupidity of the government for not seeing this. Australians are homeless, but we keep bring in people who take any available housing and so Australians are made last. Stuff big business for pushing for more immigration, these people in their big houses and have fat bank accounts dont care families have no where to live, cant get treatment a hospitals ect, , Stop it

  7. It seems that the Albanese government is bent on destroying our economy and lifestyle. We had the steepest drop in real wages earned of any developed country. The reason for this high migration is simply to avoid a recession. Recession is defined as a reduction in GDP, but not per capita, but as a whole. Per capita GDP has been dropping for a while as we are becoming less productive and competitive, whilst GDP due to migration (investment in housing all those new arrivals) has given the numbers an illusionary positive spin. Meanwhile inflation is going to persist, which means we’re getting poorer. Main contributor to that is the migration numbers putting the upward pressure on housing. This government is totally incapable, any logical person can see that it will lead us to ruin. Many people are now leaving and I to, as an immigrant in the early 80’s, am now considering other options.

  8. Immigrastion at the moment is making the housing problem worse as well as the problems with hospitals. The only way to catch up is stop all immigration other than that is essensial ,like doctors ect, ,until we do catch up. I shake my head at the stupidity of the Governemnt in not seeing it.. They should stop listening to big business who dont care about the little people , as they talk from their big houses and luxery cars, and dont have any problems paying their bills. Stop all immigration now

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