Skilled migration: are we bringing in more skills or just more renters?

It’s no secret that net overseas migration numbers have soared, with 563,000 people entering the country last year. Just to put this in perspective the pace of this is comparable to the post WW1 and WW2 levels of migration. In many ways, the pandemic looked like a war. Around half of these are permanent migrants brought in to address the skills shortages we’re facing in the engineering, nursing, teaching, and hospitality sectors. And, of course, the big ones that make up about 33% of shortages are skilled trades and technicians.

Historically, this has been a successful program serving the country quite well, particularly from 1996 onwards, with permanent migrants supplying about one-third of the increased skill requirement of this country and adding around 0.5-1% of the annual economic growth rate. Moreover, the government is incentivized to keep the population growing to combat the low birthrates in the country, which, left unchecked, could lead to the demographic timebomb of an aging population and insufficient tax revenues from younger workers to provide for the health and welfare costs. Australia has also largely successfully integrated migrants into the culture over time.

However, a closer look at where the recent migrants are working indicates that the policy has not been as successful as in the past. Skills shortages persist despite the re-opening of borders since the start of the pandemic. At present, 43% of skilled migrants aren’t working in their nominated profession under the state government-sponsored immigration scheme. This is likely to worsen before it improves as the economy continues to deteriorate under the pressure of the restrictive monetary policy imposed by the RBA.

Around 51% of migrants with undergraduate degrees worked in unskilled jobs three years after graduation, and 80% of international students competed with the locals in the rental pool, driving up rents. We can see clearly what the twin effect of a crushed construction industry and fast population growth has done to rents which have risen by an astonishing 52% over the last three years. While this is great news for investment property owners, it presents some problems via increased rent inflation and more competition in unskilled jobs, which widens the wealth divide between the rich and the poor.

Anecdotal evidence seems to back up the data. I spoke to my brother recently, who is looking to hire some software engineers for his team, and despite many applicants who have been good on paper, virtually none have been able to do the required work. Additionally, a mate of mine works as the sales manager for one of the largest wholesalers and suppliers of frozen foods and ran the same job advertisement for a simple job in packing twice in May 2022. They had 37 applicants apply. Running the same ad again in November 2023 saw nearly 600 applicants apply. He no longer advertises and asks the existing staff if they have any mates who need work if a vacancy arises.

While the skilled migration policy is a good idea and necessary for the growth of businesses in Australia, there has been a breakdown in the implementation process, and it is now just adding to rent inflation. Over time, it will also raise the unemployment rate as the economy continues to soften, eventually leading to more stimulus from the central banks to kick-start the economy. Our best guess is that the RBA will lower rates by about 1.5 to 2% from where they are currently, with the first cut being in the second half of 2024. This result is always the same, and it will drive up the final leg of the property cycle.

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