API Blog :: Have your say!

March 1, 2012

Big vs small: What’s best for Australian property?


In recent months there has been plenty of topical and often emotive debate on the issue of immigration. Like the major political parties, many Australians (if talk back radio is to be believed) are divided on the issue.

BY ED CHAN

There’s a schism of opinion between successful businessmen such as Dick Smith who argues the case for a ‘small Australia’ and his old mate, ad man John Singleton, who strongly disagrees with Smith.

I’m not an expert on this significant issue, but I do firmly believe that we as individuals concerned with property values, need to consider the big versus small argument carefully.

With this mind, I’d like to take a look at some of the arguments for and against a big Australia. Bear in mind these views are very top line, but regardless of which approach you follow, I would strongly contend that if we want the value of our homes to increase then we need a housing environment where demand is greater than supply.

AGAINST

Firstly to the arguments often put forward for a small Australia, namely:

• Our cities are over-populated and public services wouldn’t be able to cope

• More people would change the status quo, have a negative impact on our lifestyle and potentially lead to cultural friction and more crime

• The environment would take a hit

• There would be less jobs

• Increased pressure on social security equals higher tax for everyone else

• More demand equals higher cost, therefore higher inflation follows

• We don’t have the housing infrastructure or capacity to cope with a population influx.

The last point is significant given the nature of this forum. It suggests that supply would not be able to match the demand a massive immigration surge would cause, therefore leading to a house price hike and making the Aussie dream of home ownership less obtainable. But isn’t this simply supply and demand at work? And for those who are fortunate to own property, is this not a pretty good outcome?

FOR

Looking at the flip side of the coin, the proponents for a big Australia also acknowledge the matter of standard of living. They say that most Australians would like to own a house, live in a better suburb, own a new car, have fruitful investments and enough money to look after their families and then retire on.

To achieve this, the argument goes, we need to live and work in an economy where our GDP achieves two per cent to three per cent annually. This will lead to a healthy economy where companies can respond to the demand by producing more goods and reaping greater profits. In turn this enables them to employ more people, who are then able to buy more goods and services (property included), pay tax and meaningfully contribute to the economy.

And underlying this cycle is a bigger Australia that’s fuelled by a growing population of skilled immigrants, who have been encouraged to call Australia their home, especially if the cost of skilling them has been paid for in another country.

According to this argument, in an Australia that remains stagnant or shrinks there will be:

• A skills shortage, which will push up the price of skilled labour

• Less demand for goods and services, which will lead to companies winding up operations and retrenching staff

• Less revenue to pay for the essential services we rely on every day

• Increased pressure on younger generations to pay for a growing population of retirees without the income to pay for their retirement.

Another key assertion put forward by the big Australia proponents is that if Australia falls into recession (where GDP drops below zero) then the resulting unemployment will not only impact our standard of living but also devalue our assets, property included.

Whereas the small Australia contingent would argue that a bigger population would push property ownership beyond the reach of many Australians, the pro big Australia contenders would say that not only does Australia have enough space for new arrivals, but that we need a bigger population to deliver economic growth and new investment in infrastructure, in light of which we would have a healthier housing market.

So there you have two lines of thought for and against a big Australia.

I’ll leave it for you to consider which would have the best outcome for property value in Australia, and if you have an alternative point of view it would be great to hear it.

Edward Chan is the co-founding partner of leading property accounting group Chan & Naylor Australia. Ed is also the co-author of four best-selling books including How to Legally Reduce Your Tax, Wealth for Life, Buying Property with your Super and Small to Great. http://www.chan-naylor.com.au

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1 Comment

  1. Ed, I appreciate the way you present your views to botyh sides of the argument and agree with you. Ed I have been a great follower of yours for a number of years, keep it up. Laurie

    Comment by Laurie Hedgland — March 1, 2012 @ 3:33 pm

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