August 1, 2018 by Dymphna

How this treasonous scandal affects the property market

This is crazy, almost treasonous policy. But how do we play it?

One of the stylised facts about the Australian property market right now is that demand is strong thanks to strong levels of immigration. Our immigration intake is quite high by OECD standards, and very concentrated in our big cities (just 6% of immigrants between 20011 and 2016 set up permanently in regional areas).

So this juices demand in the big cities and pushes prices higher.

But not all immigration is the same, in terms of its dollar value impact on property prices. Largely it comes down to wages.

On that front, immigration tends to be a bit polar. On one end we have the SIV (Significant Investor Visa) class, where basically if you show up with a bunch of money bags (like $5m worth), you can have a visa.

At the other end, you have lower-wage migration aimed at easing “skills shortages”.

I put that in quotation marks because our skilled immigration intake seems to be a bit of a scam.

Take the story last week about NSW government policy that mandates that subcontractors employ foreign nationals.

Yep, that’s not a typo. You’ve heard of policies that force companies to employ locals. A lot of governments around the world do that.

But no, in what is possibly the only example in the world, the NSW government is forcing companies to employ non-nationals.

From the Daily Telegraph:

Secret tender documents obtained by The Daily Telegraph reveal the Roads & Maritime Services project stipulates there must be a “minimum” of 20 per cent of “offshore” jobs in the first year, 30 per cent in the second year and an “ongoing approach to increase offshore efforts” in subsequent years of the seven-year contract…

At least 300 Australian IT jobs are expected to be sent overseas in the first three years alone…

Under the title, “Offshore Resourcing” the document says: “Prices should account for the achievement of RMS’s target offshore resource utilisation such that: an initial year one target of 80%/20% onshore/offshore resource utilisation; a year two target of 70%/30% onshore/offshore resource utilisation; and a measured ongoing ­app­roach to increase offshore efforts over the contract term.”…

It is understood that two Indian companies, Tata Consultancy Services, based in Mumbai, and Wipro Ltd, headquartered in Bengaluru, have made the short list and were asked to submit a ­revised offer to the RMS on May 11…

I don’t even know where to begin with this. Frankly, I’m surprised there’s not blood on the streets. Why aren’t people angrier about it?

At a time when we’re worried about weak wages growth and weak consumer demand, we’re forcing companies to employ foreigners rather than locals.

And at the same time we’re worried about having enough skills to meet the technological future, we’re importing cheap workers rather than setting up the infrastructure that will train the workers we need going forward.

We are selling our children out just to save a few bucks.

And sure, it’s great that governments are pinching their pennies, but if we’re looking for fat to trim, I’m sure there are a lot of other places I’d rather be starting than local wages.

But what’s the impact on property?

Well, The Australian did a little more digging:

Hundreds of cut-price Indian IT workers are working for the NSW government, being paid as little as $50,000 a year for what should be $100,000-plus jobs at Sydney Water.

The company supplying the workers, Wipro, was revealed yesterday as one of two Indian firms bidding for a Roads and Maritime Services contract — a contract the Berejiklian government has been forced to defend as it specifies a “minimum 20 per cent offshore utilisation” to cut costs.

However, The Weekend Australian can reveal Wipro is already involved on IT projects for Sydney Water, having won a tender to “design, build and run Sydney Water’s billing and customer relationship management system”.

There are 120 staff in India and about 300 in Australia working on the system.

“Any Wipro employees based in India that come to Australia will continue to earn their Indian salary plus an allowance to consider higher cost-of-living expenses in Australia,” a spokes­woman for Syd­ney Water said…

Under the terms of 457 visas, workers are not supposed to be paid at less than market rate…

Yes, you got that right. These workers will get paid what they get paid in India, undercutting locals and graduates.

And this is the dark-heart of our skilled immigration policy. It disincentives investment in skills and education, and seems designed to do nothing but suppress wages.

Short-sighted to the point of evil.

But the impact on the property market should be fairly clear.

Yes, immigration adds to demand, but we’re talking lower-waged demand (by design). That means we’re talking about demand going into our entry-level and cheaper price points.

(Which, you might be surprised to learn, are booming right now.)

As long our governments keep pursuing this madness, this is where we’ll see the impact show up.

This has been a reliable trend for a while, but I’m not sure how confident I’d be about it holding. Anger is building.

I think those fundamental economic extremist might just have pushed things too far this time.