Magazine article IPA Review

The Myth of Migrant Debt

Magazine article IPA Review

The Myth of Migrant Debt

Article excerpt

CLOSE examination of the elements of the nation's wealth makes it clear that the conventional view of immigration's adverse impact on foreign debt and the balance of payments is based on assumptions which, in the Australian context, have no validity whatsoever.

So the claim that migrants create the need to import capital (debt) to ensure that the nation's capital base is not diluted is plain wrong.

The most influential proponent of this view is Fred Argy, former President of the Economic Society of Australia and head of CEDA. But he betrays a misunderstanding of the nature of capital and its formation. Argy states:

"...the value of Australia's capital stock was about $1200 billion or about $70,000 per capita at June 1989...To ensure productivity levels and standards of services remain unaffected, immigrants would, in the long run, need to be equipped with the same amount of capital on average as the existing population."(1)

He goes on to claim that an extra $10 billion in investment per annum would be required to maintain the per capita stock of capital for an intake of about 140,000 migrants. But then comes the qualification: "this assumes constant returns to scale and no unutilized capacity."

Wait a minute! No excess capacity! We are talking about a population-induced increase in demand of less than one per cent per annum. Are we seriously to believe that the majority of Australian businesses are operating in such a manner that they could not cope with an increase in turnover of 0.8 per cent per annum, for even a decade, without an injection of capital?

An examination of each sector of our capital stock will show just how much under-utilized capacity we have and shed more light on the flaw in Argy's argument.


Private Housing--$740 billion (52%) Shares, etc.--$185 billion (13%) Commercial Property--$240 billion (17%) Rural and Other--$256 billion (18%) Total Net Worth--$1421 billion Per capita Net Worth--$81,200

About 9.5 per cent (610,000) of Australia's 6.4 million dwellings are vacant at any time. This is roughly 1.2 times the number of houses purchased each year. But the vacancy rate varies considerably around the nation from a low of 6.5 per cent in the ACT (5.4 per cent in 1981) to a high of 11.5 per cent in Tasmania.

Given that there is no evidence of widespread homelessness and dislocation in the ACT, then we can assume that a vacancy rate of six per cent is approaching maximum efficiency in a housing market. Deduct this from the total vacancy rate and we are left with about 3.5 per cent of the housing stock (225,000 dwellings) as under-utilized capacity; This is enough to house 700,000 people and constitutes over $26 billion in misallocated capital. Furthermore, migrants contribute very little to this inefficiency for they do not add to the demand for new houses, but, instead, reduce the vacancy rate of the existing housing stock.

Half of all migrants are still renting after five years here and most, when they do buy, buy existing houses, not new ones. Failure to appreciate this is the reason why the government housing advisory group, The Indicative Planning Council, has consistently underestimated housing demand over the past three years. They place far too much weight on the impact of reduced immigration.

It is worth noting that the vacancy rate for New South Wales (8.66 per cent), the major destination of migrants, is a full percentage point below the average rate (9.68 per cent) for the remaining mainland States. A breakdown of the figures for New South Wales would show that Sydney's vacancy rate is even lower still.

It is no surprise that the role of migrants in reducing vacancy rates is overlooked because a 100,000 reduction in the annual intake would take two years to show up as a one percentage point increase in vacancies. But that is exactly what is showing up in the latest figures as a result of cuts to the immigration program. …

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