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Immigration, Population Growth, and Infrastructure in Australia: A Crucial Nexus

  • Writer: info349328
    info349328
  • Mar 14
  • 4 min read

Immigration has long been a key driver of Australia’s population growth and economic prosperity. Over the past several decades, the proportion of overseas-born residents has steadily increased, with 30% of the population being born overseas in 2023. This trend reflects Australia’s continued appeal as a destination for work, study, quality of life, and climate (although I suspect not many people move to Canberra for this!).

The Role of Net Overseas Migration (NOM)

Net overseas migration (NOM) is a key measure in Australia’s population dynamics. It measures the net gain or loss of population through international migration, encompassing those arriving and departing the country. Historically, Australia has experienced a net gain of migrants each year, with 2023 marking a significant peak. In FY23, NOM contributed a net gain of 518,000 people—the highest on record. Temporary visa holders, particularly international students and skilled workers were the largest contributors to this increase.


In total, Australia’s population grew by 624,000 people in FY23, a 2.4% increase from the previous year. This growth was composed of 518,000 people from net overseas migration and 106,000 from natural increase. With natural increase (births minus deaths) slowing over the past few decades, immigration has become the primary source of population growth.

Population Projections with different levels of NOM

According to the Australian Bureau of Statistics (ABS), without overseas migration, Australia’s population would begin to decline in the 2030s. This underscores the critical role immigration plays in sustaining population growth. The ABS’s projections highlight various immigration scenarios, each reflecting different implications for future growth.


Immigration as a Political Flashpoint

Immigration has become a key political issue – particularly as the political narrative has increasingly linked housing affordability (or should we say unaffordability) to Australia’s rapid population growth. In response, the two major political parties, the Australian Labor Party (ALP) and the Liberal-National Coalition (LNP), have both announced changes to immigration policy.


ALP’s Approach: Government Caps on Temporary Migration

Previously, somewhat perversely, the Australian government did not directly control migration numbers.   The net migration outcome each year is determined by the net of:

1.       New permanent migrants;

2.       less      Australians who have permanently migrated overseas;

3.       plus     New temporary migrants; and

4.       less      temporary migrants who leave


Under previous policy, the Commonwealth Government through its permanent migration quotas effectively set a cap on permanent migrant intake (item 1, above).   Australians moving overseas permanently tends to be reasonably small and steady. 

The big movers are all on the temporary side.  The record outcome in 2023 reflects the impacts of universities reopening post Covid (and, hence, record student intakes) combined with relatively few historic temporary migrants leaving Australia.


In FY23, total net overseas migration (NOM) reached a record 518,100. This included 195,000 permanent migrants, 17,900 humanitarian visa holders, and 305,200 temporary visa holders, the majority being international students. The 2023 record reflected the reopening of universities post-COVID, leading to a surge in student intake, while relatively few temporary migrants left the country.


Facing backlash, the ALP has announced policy changes, which if implemented would see the Commonwealth Government take direct control of the aggregate number of university and education places offered to overseas students.  That is, the Government would take direct control over item 3 and 4.


The ALP’s policy change now focuses on controlling student numbers by setting caps for each university, with proposed caps 16% lower than 2023 levels. As a result, the flow of students is expected to slow, leading to a notable reduction in population growth. If these lower caps are sustained over time, temporary migration could actually turn negative (as the students associated with the record 2023 intake ultimately leave).


With the introduction of these caps, the government will allow 270,000 new student enrolments. Alongside reductions to permanent migration, this will bring the projected NOM down to 260,000 in FY25 and 235,000 by FY26–27, essentially halving the 2023 migration numbers. The ABS projects a high NOM scenario of 275,000 and a medium scenario of 225,000, with the budgeted NOM aligning more closely with the latter. If we assume the natural increase will be the medium scenario of 119,000, the population in FY25 will increase by 379,000. (FY23 increase was 624,000 people).

The Impact of Immigration on Infrastructure

Why should Infrastructure investors care about immigration?  Outside of PPPs and regulated assets, most infrastructure investments have a fundamental patronage or GDP growth driver.  Think of an airport or toll road, the value of this asset is driven by usage.  Likewise, for a container port, the throughput through the port will be driven by the level of GDP (and the population catchment it serves). 


Thus, population is often the most fundamental revenue driver of ‘patronage’ investments.   In this context, a change to immigration policies which is likely to have a meaningful impact on population growth (particularly in the next 2-3 years) is actually quite important.


Would lowering immigration solve the housing crisis?

The debate surrounding immigration has been heavily influenced by Australia’s housing crisis. Many view immigration as a key contributor to rising property prices, particularly in major cities like Sydney and Melbourne.  There is a good element of truth to this, but it isn’t the whole storey.


It is not just immigration that has driven Australia’s house prices to crazy levels.  There is a much wider range of policies (capital gain tax free status of the family home, negative gearing rules, bank credit norms in Australia, exclusion of the family home from assets tests for pensions and aged care, etc etc).   Just changing immigration is unlikely to make housing instantly affordable and, for the broader economy and government finances, there are likely to second round affects from lower economic growth and tax revenues, which are not necessarily positive. 


In summary – if fixing housing was this easy – we would have done it 20 years ago.

 
 
 

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