Data for the March quarter revealed an increase of 563,000 people or 2.2 per cent over the last year, with this population growth driven primarily by immigration which accounted for 454,000 of the total increase.
Projections suggest that this trend is set to continue, with Australia on track for net immigration of 500,000 or more in the last financial year, pushing population growth to its fastest pace since 1966 at 2.5 per cent.
While this boom is partially a recovery from the pandemic-induced slump, it has broader implications, according to AMP’s Shane Oliver.
On the positive side, the chief economist said, it is expected to boost measured GDP growth and contribute to a more dynamic economy, however, it also presents challenges, particularly in the areas of housing and employment.
One of the significant consequences of this population surge is the exacerbation of the housing shortage.
Dr Oliver noted that while the government is taking steps to address the issue by focusing on supply, “this is not going to be easy”.
Namely, the government’s target is to build 1.2 million new homes over five years from July 2024 – or 240,000 per annum – with measures such as the now passed Housing Australia Future Fund and the National Housing Accord expected to help this along. But, given that the government’s commitments regarding new homes are a tiny fraction of the 1.2 million target, the private sector will be relied on to deliver the bulk of them.
And while the private sector did support the construction of some 1 million new homes in the five years to 2022, challenges such as the backlogs of approvals, labour, and material shortages, and disruptions among home builders could hinder plans moving forward.
“If we have only managed to build 200,000 dwelling per annum in the last five years, where is the capacity going to suddenly come from to build 240,000 p.a. going forward?” Dr Oliver questioned.
Additionally, the record surge in immigration is exacerbating the supply shortfall, with an estimated cumulative shortfall of at least 165,000 dwellings before the new schemes take effect.
“Underlying demand is running around 220,000 dwellings per annum but over the next year or so actual dwelling starts will be subdued at around 180,000 which means a new shortfall each year of about 40,000 dwellings adding to the already existing shortfall. Trying to make up for that short fall will be hard,” Dr Oliver said.
The solution, he noted, is to cap the level of immigration to the ability of the property industry to supply homes for the new immigrants.
Slowdown in employment opportunities
Moreover, Dr Oliver suggested that leading indicators of job growth suggest a potential slowdown in employment opportunities, adding another layer of complexity to Australia’s evolving economic landscape.
“Our jobs’ leading indicator, based on job vacancies and hiring plans, points to a sharp slowing in jobs growth to around 1 per cent year-on-year or 12,000 net new jobs a month. Rising applicants per job ad and deteriorating consumer unemployment expectations are also consistent with a cooling jobs market.
“With the surge in immigration driving strong population and hence workforce growth, around 37,000 net new jobs a month are currently required to stop unemployment from rising,” Dr Oliver said.
Anything below this, he concluded, will see higher unemployment.
“We expect unemployment to rise to above 4.5 per cent by the second half of next year.”
