What and Who is Driving Population Growth

in

Australia?


Sheila Newman*
December 27, 2001

 

The Australian press has recently implied that criticism of rates of immigration is racist. And they are not about to publish alternative views on the matter. I have written in order to show that there is room for criticism of the size of our immigration program, not just on environmental grounds, but on social welfare grounds as well. Readers should also note that if Australia's economic program were to be reduced, there would be more room for refugees. All population growth, however, must be costed. The higher our standard of living, the smaller our population must be.

Many people believe that Australia takes immigrants mainly for humanitarian reasons. This is only true these days in the case of refugees. Rather, most immigration is justified on economic grounds based on the desire to create a larger local market and to stimulate inflation. Thus business organisations are the main drivers of immigration, constantly lobbying government to enlarge the formal immigration intake.

The most active of these organisations seem to be in the areas of property development and housing, such as the Housing Industry Association and the Urban Development Institute of Australia.

The Australian Population Institute (APop) is also an outspoken advocate of higher immigration. While it claims to have no political or other mission objective other than to "represent the views of the many Australians that support responsible population growth", the committee nevertheless has very close connections with property development. APop president Albert Dennis, for instance, is Chairman of the Dennis Family Corporation which is reputed to be Victoria's largest private land developer, with considerable land holdings in Melbourne and Brisbane. APop's Secretary Geoffrey Underwood is Director of Underwood and Hume P/L, a group of Town Planning Consultants. And Vice President David Coomes is Managing Director of the Coomes Consulting Group which is concerned with development and engineering of major residential and industrial estates as well as roads, bridges and assorted infrastructure. In addition, APop itself admits that it began with "initial support and seed funding of the peak body, the Urban Development Institute of Australia", which is of course an association of property development organisations.

Other business organisations, the upstream and downstream industries to housing and infrastructure industries, are also involved in advocating population growth through higher immigration levels.

Phil Ruthven of IBIS International lists such downstream industries as "banks, building societies, other mortgage providers, and residential property operators."

Upstream providers are manufacturers and suppliers of "every conceivable building material".

A number of names crop up regularly in the press advocating population growth via high immigration. Many are also cited by APop as among its early core supporters, described as "a group of non-political businessmen". These supporters are: Tony Berg [a member of the Business Council of Australia's population committee in the Australian]; Lindsay Cattermole [Member of the Committee for Melbourne]; Ivan Deveson [director of Crane Group Ltd. and United Group Ltd., groups with very wide interests, including construction and asset management; and Chairman of the Business Skills Assessment Panel for the Immigration Department from 1992-1996, and Lord Mayor of Melbourne from 1996-1999]; Hugh Morgan, [Mining]; Richard Pratt, [Visy Industries]; John Ralph [Director of BHP Ltd., Commonwealth Bank, Pacific Dunlop, and Telstra Corporation]; Phil Ruthven, [IBIS Business Information Service]; Ron Silberberg [Housing Industry Association]; Jack Smorgon [major property and manufacturing interests] and Malcolm Fraser.

They are a relatively small circle of people, but they do get a lot of press. This may be because Australian media owners have substantial interests in real estate marketing. For instance, both the Fairfax and the Murdoch Press are owners of major on-line property dot.coms which advertise Australian property to a global market.


The relationship between rising house prices and high immigration

Clearly developers, builders, and infrastructure engineers are a major force driving population growth in this country.

And population growth is what is driving profits in the property development industries. Apart from statements from the Reserve Bank and property developers themselves, this can be demonstrated by comparing housing prices in high immigration cities and low immigration cities and regions. Compare the two graphs below.

 



 Fig. 1. Median Dwelling Prices as a Percentage of Disposable Income $1984-5 for Australian Cities with High Population Growth and High Overseas Migration.

Source for Median Dwelling Prices was the Housing Industry Association, "HIA/CBA Housing Affordability Index".


The median prices are taken from Commonwealth Bank loans for home purchases. The original data was not adjusted for inflation, however, I adjusted for inflation by expressing the actual prices at $1984/5 using the ABS CPI. Note that the ABS CPI has, since 1998, ceased to take mortgage payments into account, but this change would have a minimal effect on these graphs. Note also that the graphs using HIA/CBA Affordability data show quarterly variation, whereas the graphs on immigration only show annual variations. Source for disposable income was HIA Affordability "Disposable Income". Note that Brisbane is largely affected by interstate overflow from Sydney and Melbourne. Melbourne experienced high outflow of population to other states between the years 1985 and 1997, which cancelled out much of the effect of overseas immigration numbers. Sydney also had high interstate emigration but this was compensated by the very high overseas immigration. Brisbane experienced very high interstate immigration and relatively high overseas immigration, resulting in very high population growth overall.

 Fig. 2 Median Dwelling Prices as a Percentage of Disposable Income $1984 in Selected Areas with Low Population Growth and Low Overseas Migration 1984-1999 (Net Overseas Migration adjusted for category jumping.)

Source: ABS Demographic Statistics 3101, "Percentage rates of resident population growth" and HIA/CBA Housing Affordability Index for Disposable Income. I have adjusted prices to $1984-5 AUD.


It is possible to detect jumps in property prices where particularly high net migration has occurred. For the years 1950 and 1979 average total net overseas migration was 84,430 per annum. Between 1985 and 1989 the annual average was 137,580, the highest on record post WW2. Between 1995 and 1999 average total net immigration was almost as high, at 106,024. In cities and regions that do not have high immigration, property inflation is much less and there is none of the ratchet effect which we can see in the high immigration cities. To the contrary, although prices rise moderately from time to time, there is always a market correction. The comparison can be made internationally.

In France, where there is no positive relationship between overseas immigration and property development, there is also no such ratchet effect, even in Paris. Between 1985 and 1995, under the influence of the global property boom, massive inflation occurred for the first time, but prices eventually returned to the place where they started. In contrast, in Sydney, Melbourne, Perth and Brisbane they have risen continuously.



Fig. 3 Index of price of dwelling in ratio to disposable Income, using 1965 francs.

Source: L'Observateur de l'Immobilier, No. 43, paris, 1999. The original data source is "Marché immobilier des notaires" (Notaries' property market) and INSEE Annuaire statistique de la France, ed. 2001.


The top line, indicating higher prices, is always for Paris. The second line is for other French urban centres, and the lowest line, "Province" is for Other Areas, including non-urban. The graph shows the ratio of disposable income to domestic property prices per square meter from 1979 to the year 2000. Affordability was highest in 1981. Between 1987 and 1996, however, France, mainly Paris, was affected by the same period of global property speculation that affected Australia. This was the first time France had undergone such a phenomenon. In contrast to Australia, however, the prices returned to the level preceding the speculation bubble.

Figure 3 shows that dwelling prices in France have risen and fallen quite steeply, but there appears to have been an overall stability, since 1965, when they stopped rising in real terms. Even in Paris the first big speculative bubble between 1985 and 1995 eventually came back to its starting point. This was an international bubble and was associated with the globalisation of the property market, not with population growth or growth in household formation.


Globalisation of the Property Market and its relation to Population Growthism

The first graph showed that high immigration cities have higher house prices. But there is another factor influencing high prices: globalisation.

The Whitlam Government (1972-1975) was strongly opposed to foreign borrowing in exchange for equity and had the lowest rate of foreign ownership (10%) for Australia since the second world war.

The Fraser Government began to liberalise the Foreign Acquisitions and Takeovers Act in 1975. It has been progressively liberalised since, and to this has been added deregulation of banking. From less than 10% in 1972-75 under Whitlam, foreign investment in Australia increased to 49% of GDP in 1990-91. By 1986 more than half was destined for real-estate investment.

These changes have led to the globalisation of the property market, which means that people from all over the world compete to purchase property in Australia or to invest in developments. Housing may be purchased "off the plan". Few barriers remain.

The globalisation has almost certainly caused lengthening and deepening of property market cycles; that is, it has caused higher price peaks over longer periods of time. But it is high immigration that has kept those prices high - which has caused the ratchet effect familiar in Australia's high population growth cities.

In the absence of high immigration or some other form of rapid population growth, such as high fertility, even long deep cycles are eventually corrected by the market, as may be seen in a comparison with French and Parisien property cycles between 1965 and 1998.

In Australia, at the beginning of 2001, overseas purchases accounted for 30% of unusually high, often "extraordinary" real estate profits, mostly in the high migration cities.

There is a statistical relationship between immigration and housing production in Australia. There are also links between high prices and a combination of high immigration and foreign investment in property.

This is further evidence of why the property development and housing industries find immigration worth lobbying for in Australia.

It is used in the following way. In order to attract foreign investment there is a need to convince the potential investor that the population is growing and expanding and that so therefore is the need and the market for infrastructure and housing.

Obviously nothing like the Australian rate of expansion exists in France or Western Europe. (An exception would be the case of Germany, which, since reunification, has suffered increased competition for housing through immigration from Eastern Europe.) In First World countries it seems to be a phenomenon virtually exclusive to the English-speaking settler states.

A special system of land development planning and housing that encourages land speculation also appears to be a major reason why populations are growing fast in Canada, the US, and Australia, whereas in the European part of the First World, high immigration ceased after the 1973 oil shock, redirecting the population trajectory towards a decline to 1960s levels after 2050.

For the environmentalist who is aware of the dwindling quality of vital resources like soil and water, and to those who love the natural world, the costs of this expansion of population and infrastructure in Australia to the general community are obvious. However the speculative relationship between population growth and property development has major social as well as environmental significance.

The social consequences of land speculation in Australia are:

- Increasing homelessness

- Increasing cost of housing

- Increasing socio-economic and class division between the property rich and the property poor

The situation is affecting the young, many of whose potential earnings are diminishing as home ownership prices and rentals increase. The option of home ownership as a hedge against poverty in old age is fast disappearing. The socio-economic division between the propertied elderly and the renting elderly is growing. A new issue is the ability to cash in on property to pay for accommodation in nursing homes. This option, of course, also reduces the prospect of inheritance for young people.

A situation has evolved where most Australians cannot afford to live in Sydney and where only the outer suburbs of the other big immigrant receiving cities are still affordable.

A certain class of Australian residents and foreign based investors - those who own property in the high population growth cities - are often in a position to be able to profit from the fairly constant rise in city dwelling prices. For this group, dwelling price inflation provides speculative opportunities to those home owners. Note however that one third of the Australian population owned no property at all in 1996.

People who live in the cities, but who do not own land or dwellings, and people who live outside the cities, whether or not they own properties in non-growth areas, are not able to profit from this city dwelling price inflation.

This means there is a basic inequity between property and non property owners in the city and between the country and the city.

Our land development planning and housing system is one of the forces at the root of the growing social and economic divide between propertied and unpropertied classes and of the antagonism which accompanies it.

What Action can be Taken against Profit from Speculation?

Australian governments need to imitate the actions of Western European governments and:

- end artificially accelerated population growth that speculative schemes rely on tax speculative profits made on land transactions;

- provide public housing and low cost land development to compete with speculative housing development;

- boost funding and resources for European style building trades education to enhance use of technology, modern organisation and modern marketing and production methods, including factory production on demand to replace speculative boom and bust building on land bank estates;

- plan development nationally, according to finite zones; and

- refuse local rezoning according to private deals or reasons not co-ordinated with national and bioregional zoning.

In addition Australians need to:

- advocate the purchase of established residences only;

- highlight the ecologically damaging and anti-social nature of further extension of housing and infrastructure;

- recognise land clearing for the social and ecological evil it presents;

- develop more efficient organisation of space, infrastructure and transport in light of a looming long-term commercial energy shortage.

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Used with permission of the author.
* This paper is part of Sheila Newman's Master of Arts dissertation in Sociology comparing population policies in First World countries from 1945 and with projections to 2050.