The
Immigration
Economy

Australia's population growth has been overwhelmingly driven by net overseas migration, particularly since 2022 when COVID-era borders reopened. The surge far exceeded any notion of "catch-up immigration."

Natural population increase has been declining for over a decade, meaning Australia's growth is now almost entirely dependent on immigration. This represents a fundamental structural shift in the economy.

It was the Howard government that ushered in the era of mass immigration. He had a good excuse. The post-millennium once-per-century mining boom really did leave Australia short of workers, and skilled migrants helped keep a lid on strong wage growth, helping to keep interest rates lower than they might otherwise have been.

At that time, Australian cities also had abundant infrastructure, so they could accommodate an influx of people relatively easily. It was a win-win policy.

That had dramatically changed a decade later. The mining boom turned to ashes in 2012, and ten years of population inflows had begun to create shortages of their own in areas of the economy beyond labour, such as housing and roads.

Traditionally, Canberra had cut back immigration at such times to ease pressures on living standards and protect workers' wages during a downturn. But the Abbott government of the day decided instead to conduct a grand experiment. It kept immigration at boomtime levels, which crushed wage growth, exacerbated shortages, and cratered interest rates.

Immigration shifted from a useful economic complement to the primary economic driver, and that changed everything.

New modelling by the Institute of Public Affairs reveals the staggering scale of the problem. Net permanent and long-term arrivals hit a record-breaking 480,520 in 2025—exceeding the previous 2023 record by 7 per cent.

At the exact same time, housing approvals fell annually by 15 per cent in December 2025. This widening chasm between demand and supply helped push national dwelling prices up by about 7 per cent—nearly $80,000—over the year.

"Since Covid, there has only been one issue talked about regarding house prices, which is supply. In reality, anyone who has done high school economics knows it's supply and demand. One thing we can control is demand from migration. It's that simple."
— Kent Lardner, Head of Research, FoundIt

The post-2012 phase of the immigration-led economy was dominated by the relationship with China. Chinese capital flooded in to build apartments for Chinese migrants, and eastern cities experienced an enormous apartment-building boom.

This supply response squashed rents and kept some dwelling prices down—the only period in which population growth and rental growth diverged in recent history. It also enabled budget repair because private investment was leading the economy again, even if it was only to keep pace with population growth.

After COVID, the immigration-led economy was revived with gusto. Arguments that this was just "catch-up immigration" were ridiculous. Had any of our infrastructure been caught up in the meantime? No. It was another political experiment doubling down on a failing economic model.

Immigration-led economic inflation was born from the failure to supply housing at the rate of population growth. Rent and dwelling inflation are strongly correlated with core inflation, which drives RBA policy.

The chart above tells the story clearly. Rental CPI has surged to levels not seen in decades, and it's dragging core inflation with it. This is not demand-pull inflation from a booming economy—it's supply-constrained inflation from a population policy that outstripped the nation's capacity to house people.

Welcome to your first immigration-led economy rate hike. It won't be your last.

The RBA finds itself in an impossible position. Inflation driven by housing shortages cannot be solved by raising interest rates—which, if anything, constrain new housing supply further. Yet the RBA's mandate requires it to respond to above-target inflation.

The result is a policy setting that is out of cycle with the rest of the developed world, where central banks have been cutting rates. Australia stands alone in hiking, and the reason is not a booming economy—it's a population policy that has overwhelmed the nation's infrastructure and housing stock.

Until Canberra meaningfully moderates immigration, the RBA will continue to be forced into rate hikes that hurt ordinary Australians while failing to address the root cause.