Infrastructure needs and the migration debate
Federal government moves to re-assess Australia’s high immigration rate could lead to a cut in migrant numbers. This is potentially bad news for the nation’s property and infrastructure developers.
Infrastructure Australia has just published its 2019 Audit detailing its assessment of the state of infrastructure in Australia, and assessing Australia’s future infrastructure needs.
The conclusion from the report is, probably not unsurprising for anyone living in Sydney or Melbourne, that even the current level of high investment in road and rail projects will not be enough to prevent the cities becoming paralysed by congestion by 2031. The cost of lost productivity due to gridlock is estimated to double from the current level to close to $40 billion per year.
This cost of congestion is only looking at productivity loss. It does not factor in other costs from the projected 24 per cent increase in Australia’s population (from the current 25 million to 31.4 million that ABS forecasts by 2031). These costs include water shortages (Sydney’s dam level is set to go below 50 per cent for the first time ever this week with last Thursday’s weekly reading coming in at 50.1 per cent, which is down 0.4 per cent compared to the prior week), additional investments in schools, and increased demand for electricity.
As a result of the release of the Audit, the federal government has announced that it will launch a “powerful inquiry” into Australia’s migration program, opening the door to both cuts in immigrant numbers and moves to make sure that immigrants settle outside Sydney or Melbourne.
If this “powerful enquiry” does indeed result in lower immigration numbers, it could have significant implications for a number of industries including:
- Property developers who could see the demand for new properties shrink quite significantly. This comes on top of the emerging quality issues in recent developments which is reducing confidence in buyers of new apartments in particular.
- Infrastructure developers who would benefit from high levels of infrastructure spending to keep up with the increase in population.
- Employers in low wage sectors who to a high degree rely on lowly paid recent immigrants from developing countries. This coincides with the current focus on underpayment in sectors that operate through a franchise structure.
- Education providers who could see a fall in interest from foreign students if the pathway to residency post an Australian university degree is not as clear as today.
While the outcome of the enquiry is still unknown, it reinforces our aversion to invest in property and infrastructure developers.
* In May last year, I published a blog post that looked at which companies could be potentially impacted if Australia’s high rate of immigration were to slow down and concluded that the major impacts would be on companies involved in property and infrastructure construction.