Simon Kuestenmacher on Migration, Demographics and Housing Demand

In this episode, we unpack what Australia's demographic shifts are really telling us about housing, cities and economic pressure points. And here to help us is well-known demographer Simon Kustermacher. We'll dig into his most recent research to understand which demographic narratives are being misunderstood.

How migration and household formation are colliding with housing supply and why some regions and property types are benefiting while others fall quietly behind. We want to understand the foundations of underlying demand, not the headlines, and what sophisticated property owners and investors should actually be paying attention to over the next decade.

Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about.

I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Our guest today is Simon Kusumaka, a demographer, co-founder of the Demographics Group, whose work focuses on population change, migration, generational trends, and how these forces play out across housing, infrastructure, and politics.

His research is widely used by governments, planners, and businesses grappling with long-term structural change rather than short-term noise, which is one of the reasons we love talking to him. Hello, Simon. Good to see you again.

It's nice to be back on. I don't say it all my guests, but you are probably one of my favorite guests. So thanks for coming on again. I think you've been on here quite a few times. You're always adding a really important part to the overall property debate.

And when I sort of asked you to come back on, there's a lot of tension around migration in 2025, but I think it's going to be a big story in 2026. We're recording this after the horrible stuff that happened in Sydney on the weekend.

And I think what I just wanted to get is, you know, you're a little bit biased, let's call it. You're a migrant. We just spoke on air that you're coming as a citizen, you know, basically now. And so you benefited from Australia's migration policy, but so have a lot of Australians.

Well, I think Australia's benefited from Simon too. So, you know, that's something to do here. It's part of the topic, isn't it?

So let's, like, I guess, you know, be a bit more of a devil's advocate. You know, you know migration stats better than pretty much, you know, most people, right? So where are we getting it right with migration? But most importantly, where are we getting wrong?

Because, you know, it is getting really heated and people are blaming it for all our problems, but it's just obviously not that simple.

No, not at all. So maybe a good starting point is to figure out why we actually take in migrants. And so there are different migrant categories. You could start with something like international students. That's a big chunk of our migration intake is international students.

And we essentially at the moment just take them in as cash cows. We're not overly strategic with our international student sector. So what I mean by this is we, over the last couple of decades, pretty much told the universities, you don't get all that much money from the government anymore.

So we defunded universities. But we said to the unis, you can do it like the Americans. You can just charge fees to international students and that amps up your coffers. And so the unis did that and was really successful. And then the government figured, let's cut funding a bit more.

And so the unis were like, hey, no problem, a bit more. And so you kind of create a system where you tell the unis to rely more on international students. In the meantime, we kind of make this a bit more of a commercial operation, universities, than they were beforehand.

So they like that a lot. So we push more and more international students in that sector.

So since we use students, international students, not as a future resource for workers, we don't care so much about, as a system, we don't care so much about what those international students actually end up with in terms of a degree. As long as they're happy enough with a degree, that's fine.

And so that creates a system where everyone pretends that the system is just fine because the unis go like, we are the Ivy League of the Southern Hemisphere. Great stuff. The international students, even if they have a poor experience here, even if the degree isn't up to what they expected it to be.

And they, of course, go back to Malaysia, China, India and go crazy. This is the Ivy League of the Southern Hemisphere. This is great stuff because this is what gives them benefits. So everyone pretends that the system works better than it does. And that's a problem.

And we just park this international student thing there. But of course, it is very attractive. International students on average pay $30,000 a year in fees. That's a lot of money. So if you take one international student out, you somehow need to create $30,000 worth of

income for the unis. This could be done per taxpayer. It's just a sliver of a deal for each of us if we take an international student out. But of course, international students also create $30,000 to $35,000 of additional economic activity.

That is by renting, housing, by eating food, by being visited by their parents. And this creates visiting friends and family type tourism. So an international student creates activity economically. That's nice. But of course, they need to be housed. So people say, oh, guys, that's quite a few international students.

If we take them off the book, then we would have more housing available. It's kind of correct, the statement, because international students overwhelmingly occupy a very specific type of housing, international student housing, purpose-built student accommodation. So these tend to be small, self-contained apartments with larger shared communal areas.

very attractive for property investors because you get relatively many people on relatively few square meters of housing. So that's good stuff. The rest of the Australian housing market doesn't actually live in the same property.

So the only problem that international students create for the housing system is that workers that build international student accommodation, they can't build a family home on the outskirts of town. So they dig into the constricted labor force. That's a problem there. So that's parked.

And then, of course, international migrants are also skilled migrants. And we want them into the country because we do not have enough workers in the system. And this is absolutely crucial for people to understand. And this is something that I demand in the migration debate.

I'm not allowing anyone to tell me that we need to cut back migration without telling me the problems that we create. And we have a high migration number in the system because it helps certain things. And it does help to ease the skills shortage.

And the skills shortage is probably the concern that I, as a demographer, would put up front. This is going to become worse in the next decade. What do I mean by that?

Well, over the next 10 years, we push the big baby boomer code out of the workforce, and we take in only a smaller code at the other end. So we lose a big court, we take in a smaller court.

All the while, we sent an ever larger share of our young Australians into the university system. For 55% of our year 12s that graduated just now, they will go to uni next year.

That means they will then hang out on campus for one more degree, one more degree, one more degree, and they ultimately only contribute to the workforce in their mid-20s, late 20s.

How does that compare? We say 20 years ago.

are gigantic. We doubled the share of people that we go to. So if you read a biography of some of the great thinkers, doesn't matter in Australia, in Europe, of like 200 years ago, and you read the chapter about their university experience,

This is fantastic because they hang out with the brightest minds that you get this kind of ridiculous idea of what university looks like. And now going to university means that you're intellectually speaking part of the top 55% of this country. That isn't very impressive to me. No, it isn't.

And that then leads to degree inflation because you go, okay, so instead of being part of the top 55%, I do a master's degree, whatever. And so I'm all of a sudden part of the top 25% or something like this.

And they go, well, maybe I do a PhD, even if I don't want to go into academia. And so you over-educate the country. And of course, over-education in a formal sense. We're all too dumb. Like we here, all of our listeners, everyone here is too dumb. We could be smarter.

We could be reading more. We could be thinking more, of course. But as a system, we spend too much money on educating people that we actually don't need in the system. The Australian economy does not need 55% of us to have a university.

That's fascinating. Well, also, there's so many different degrees now. It's pretty basic, like social media as a degree.

At the same time, you have something like the Melbourne model at Melbourne University, where you go back to smaller degrees, where you go, there's just a few kind of degrees that we hand out. And you are very free within this framework to put together whatever you want.

And so that, of course, is problematic for the labor force because young persons, instead of entering the workforce at 18, in the early 20s, they have a delayed entrance into the workforce. All the while, our fees for unit degrees become more expensive.

We don't immediately see this because this is hidden as help, formerly HECS debt. So education debt, we don't see that, but we carry it with us. So you start work later and with debt. And the pay premium that you get for having received this degree, that shrinks.

So it's, I can't in good conscience tell a, you know, if a random 18 year old comes up to me and goes like, boy, what should I do in order to have the best career chances?

Back in the day, and statistically speaking, still true today, I'd say just get as educated as you can be. Education pays in Australia. That's still the case, but it becomes less attractive.

And there are quite a few scenarios where, let's say you are in your teenage years, you start a trade, you start earning money sooner. That's positive. You have less debt. That's positive. And then, of course, if you as a tradie, if you become a sole trader, if you become your own boss,

Then on the statistical average throughout your career, you earn 27% more income. That is like an extra decade of income throughout your working life.

And you don't have the debt.

Exactly. And quite a few scenarios. Also, you might want to hedge against a potential hyper AI future where you go maybe accountants and management consultants of this world, the mortgage brokers of this world, they might be surpassed through AI quite quickly. But what we won't surpass is tradies.

Some of the housing development that we do, I can see a future where this is done in a factory with cool robot arms and then we label together a house on site.

But lots and lots of the property development in Australia will be done by bulldozing a quarter acre block and squeezing three townhouses on top. And these are on awkward blocks. This is on site by humans.

You can't manufacture it. And you've always got like 12 million dwellings or whatever, 11 million dwellings, right? You need to get retrofitted and get renovated and they're all getting older.

The renovation cycle goes on and on and on. They're on awkward sides. If you have a trade, you will most certainly have stuff to do. You will not be bored in the next 50, 60 years that you might want

The skill shortage though, why is there a skill shortage though? Because you've got more people going to uni and then you've got more university international students. So couldn't you argue that we're going to have a super lot of education, but is it the wrong skills?

Very good. So important is so the people that we created university, these workers, well, we take people out of the 20s that we kind of in the past had earmarked to work. They work, but they only work later and they only work certain types of jobs.

Then, of course, what also happens over the next decade is that the millennials, the biggest generation of them all, they continue to make babies. That means they go on parental leave. That means they leave the world of work at least for a little bit.

So you have boomers leaving, smaller court entering, the court that enters, enters delayed, and you have millennials on parental leave. That tightens the labor pool quite significantly. Yeah. All the while, the demand for labor actually goes up because we are a fast aging society.

And over the next 15 years, we're doubling the 85 plus cohort. 85 is another important statistical year. Everyone should remember because it's the median age of death, which means you have a 50 percent chance of getting older than 55 of the whole population over 85.

Half of them need care on a daily basis. So if we double the 85 plus population in the next 15 years from 590,000 people to 1.2 million people by 2040, we need to double the aged care system. Spoiler alert, we won't be able to pull this off.

The aged care system is going to be an absolute train wreck. So therefore, my great financial advice, don't end up in the bottom third of society, financially speaking, because the public or the private system won't be able to look after you. You will fully rely on your family to take care of you.

That, of course, opens up the question, does everyone in the bottom third of society have a family that is able and willing to take care of you? So you see how the system is going to be an absolute train wreck. That alone. So we have this skills shortage there.

Yeah, that makes sense.

That is going to be a big fat problem. Remember that we talk about migration. That was the opening gambit here. So yes, so we have migrants in order to fill the skills shortage. If we don't do this, there are certain jobs that won't be filled.

Essentially, every aged care worker under the age of 40 is imported labor from overseas. Australians don't do this job, period.

If you listen to the extreme voices that say we need to have a migration pause and go back to net zero migration, that is laughable because then you create a skill shortage. This is absolutely bonkers. It's not just aged care.

Truck drivers, 75% of truck drivers under the age of 45, I think, are imported from overseas.

Yeah. And so this is a cornerstone job. And you can go through the whole system where you go, there are jobs that are mostly done by imported labor. Try to do seasonal work outside.

We've seen this during COVID when certain harvests couldn't be pulled, when fruits just rotted away because you didn't have the mobile seasonal international workforce operating in this country.

It is very easy to call for a shutdown of migration, for a minimization of migration, but this would need to be done with the utmost strategic planning in mind.

And when you just see somebody calling for cutting migration rapidly, they usually do not accompany this with their big strategic vision of how to do this. Also, of course, we want to remember politically and fiscally speaking that I find the idea of cutting migration ridiculous.

Unless the person who wants to cut migration talks about their gigantic structural tax reform. What do I mean by this? Australia is fully reliant, not fully, but mostly reliant on income tax. About 52% of all the money that flows into the budget is income tax.

61% of all the migrants that we take into the country each year pay income tax straight away. So that means the treasurer would never allow the PM to cut because this would mean you minimize your money available in the budget. So it's laughable at the moment to do this.

So let's say you cut 100,000 migrants.

you cut yourself out of so much money in the budget. And yes, it's true, each migrant creates a certain kind of need for additional infrastructure, for additional housing.

But of course, then if we look at the pure economic data, and this is only looking at skilled migrants, so the people that we take in because of the qualifications, the intergenerational report, I think from 2021 or 2022, had a beautiful chart in there that shows, fiscally speaking,

Each Australian-born person is a net loss for the budget over time. Each Australian-born person costs the state about $109,000 over their lifetimes, whereas each skilled migrant creates about $350,000 in revenue for the budget.

Why is that the case? Well, it's quite simple. The average migrant arrives here at age 24, 25. That is, of course, the first expensive 25 years of a human life. When we subsidize your birth, your education or the health care that you consume, that is expensive.

Migrants in Germany, Germany, in my case, so I leave Germany, I cost the state a lot of money. And I go into Australia at 24, 25, straight away, I pay tax here, and it's all well, sucks for Germany, fiscally speaking, but you guys get nothing but economic benefits.

And so that's, that's the idea where we... We just get this right from a purely fiscal perspective. We then, of course, say, so at the moment, I sound like I'm absolutely pro-migration, which I kind of am demographically speaking.

I would say in rough terms, call it 250,000 net new migrants a year, which is what we've done over the last decade and a bit, is about right. Plus, minus 10%, whatever. Seems about right. I'm not saying that the migration system works. So that's the important stuff.

And so if I wanted to be more productive in the migration debate, I would say things like, well, let's agree that probably demographically speaking, 250,000 people is about right. Okay, fair enough. Then I would say we need to be much stricter with language requirements. This is pathetic that we aren't.

We need to force our universities into line in terms of how they use migration. Because what we should be doing is we should actually look at all the data that we have about our future skills shortages.

And we would then only allow the universities to hand out degrees that are somewhat linked to our future skills shortages. Because this way, if we manage to get more international students integrated into the workforce,

rather than skilled migrants, this would be rather nice because first and foremost, these international students would have qualifications that by definition are up to our standards. That's good. They pay for their own education. That's rather nice. And they come pre-integrated.

Means we would actually, they at least lived here for three, four years before that. They had the opportunity to make at least some sort of local friends and know kind of how this system works here. That would be smart.

That, of course, would mean that we dictate a bit more stuff to the universities. I think that politically an easy win. You could do this. The universities would cry a bit, but so be it. We could pull this off.

And then, of course, we would need to find a solution to actually link the skilled migrants with the industry and with the geography where we want them much more tightly connected. At the moment, this migration list operates in a simple way. We say we need a thousand truckies. That's fair enough.

And so the first thousand people that fit the broad other qualifications but have a truckie license, they come in. And then we just pray that they work as truck drivers and we pray that they just fill all the jobs there. But...

How do we know that if I am sitting in Wagga Wagga, in Orange, in Portland, and I need a truck driver? People don't even know that these places exist. So there's absolutely no chance that my regional skills shortage gets filled with this thing.

So I would argue we would need to get much closer to employer-sponsored visas linked to the regions. That's something that I would appreciate. So we need to reform the system there quite a bit in migration.

That said, of course, when people complain about the total numbers and so forth, they need to know that, yes, we are in control of migration to a certain degree. So when we talk about Europe's migration crisis, then you deal with what we call unmanaged population flows.

If there is a surge of migrants coming through the Mediterranean from Africa, from the Middle East, yes, there might be the right numbers in order to stop the aging process of Europe. There might be the right age, but there's no link to qualifications, language requirements. There's none of that.

We have to at least to a certain degree, because you want to remember every Australian passport holder is allowed to enter and leave Australia whenever they want. So that's an uncertainty. The same is the case for Kiwis.

And at the moment, we have this massive surge of Kiwis into Australia as well because their economy is tanking a bit and they just come to their West Island and enjoy the opportunities that Australia has to offer. Then, of course, we have family reunion visas.

So if an Australian marries their Italian lover once they've been overseas or something, who are we to tell that this Italian guy isn't allowed to come? It's very hard when we say we want 250,000 net new migrants. God knows how many Australians fall in love during their summer holidays.

And, of course, we signed international accords that say things like you need to take in that many asylum seekers. It's not high numbers at all, but we signed those things. So it's not as much as numbers have gone crazy or anything like this.

It's just that we have a system that kind of wants relatively high migration for skills shortage, for tax purposes. And that's what we deal with. Within the system, we should adjust it quite significantly. But it is, of course, much easier to say fewer migrants, everything is the migrants' fault.

High house prices are migrants' fault. There is a horrible terror attack in Sydney. This is the default of the migration system. Who knows? Would this have been solved? The guy who came was 50. So he would have come 25 years ago during the Howard era. So what's the migration angle?

But it's, of course, a nice scapegoating mechanism. And that's also what I consider, that's my main housing narrative, is when people say, and you see this quite often from the conservative bend of politics, not the far, far right, but the conservative right. Let's say we actually celebrate migrants.

This is great stuff, but we overshoot the target. And so if we cut back 100,000 migrants, say, we would need 40,000 fewer dwellings in the system. This would be well welcome. and this should drive prices down. And I said, I like that.

That logic does make sense at first, but we had, of course, we need to check whether this is actually true. Would a decrease of migrants actually lead to lower house prices? And the big natural experiment that we ran during the pandemic...

Another reason for a couple of years, we had negative migration into the country. We lost people. And prices escalated at the ever fastest rate. You can, of course, say lower interest rates. It drove this as well. That's true. So there was plenty of money flowing into the property market.

Also, you can't do anything. You only sit at home. So the home becomes even more important in the public imagination. Of course. So that all happened. But then I would point to my underlying interpretation of what Australia is as a system.

Australia is a system that wants house prices to go up rather than down. So if you think about the players in the system that want house prices to go up, well, who is this? If you look at the... voters, and politically speaking, only voters are of interest. 64% of the Australian population vote.

There are temporary visa holders, people without a passport. We don't make politics for them. We don't care about them. We don't make politics for under 18-year-olds. They don't vote. Of these people that vote, 64% of the total population, only a quarter are renters.

So why would I make house prices affordable for you guys if the remaining 75% actually own their property or have a mortgage on it? That means they want house prices to go up. So there's a big chunk of voters that want higher house prices.

Now, obviously it's really hated and it's not going to go away, right? So do you think that it's just this misreporting of, you know, the numbers were pretty off the charts the last couple of years. A lot of international universities had to really refill their coffers, right?

And refill their student numbers, migration numbers, half a million. So like people are like worried that it's going to be this new ridiculously high level. Then is that what's driving this? Do you feel together with across the living crisis, together with the housing crisis and

People are like, well, there's no easy solutions here. Let's just blame that there's too much demand.

All of these things wobble around. And so what you get used to is we are a high migration nation. Like anyone who says the opposite is just nonsense. We are a hyper high migration nation.

And it works extremely well because the kind of amount of crime and problems, social problems that we have are nothing compared to countries with much fewer migrant numbers. We need to also remember that. Anyway, so you have the high migration numbers. And you said this is net terms.

We got half a million a couple of years ago. And people go, this is insane. You take in twice as many migrants as usual. All the while, while we have a high cost of living crisis, while we have house prices escalating, you are not doing policies for us.

I can do averages, so I'm quite relaxed about this. So what happened here is, as you mentioned, Chris, we filled in the university spots. All we've done is we couldn't take in migrants during the lockdown years.

So what we've done is we took in three and a half years worth of international students in one and a half years. That's it. That's the whole story.

If you take March 2020, this is the start of the border closage until today, and you average this migrant intake out, you compare it to the same amount of migrant intake before that, we are pretty much even. I'm on a personal mission to help more people make better property decisions.

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This is not hitting the headlines. But it's one thing I wanted to ask you about, Simon, because my understanding is that a lot of the international students, there was some controversy a while ago because there's a lot of these sort of non-university colleges who were taking in students but weren't actually studying anything.

They're going out there and riding delivery bikes and driving Ubers. So is that a thing? Is there a large percentage of that cohort that are actually students?

That kind of stuff needs to be closed. When I talk about migration reform, that's what we need. International students with the way that I would want to see international students is from a workforce perspective and from a university perspective.

So there was some sort of ratio in there and it's invested should be less than 50%. A third is good of ratio international students to local students. So to increase the university experience for everyone.

Well, that's exactly right. I mean, it's funny because my daughter's about to go to uni next year and she's just had a gap year and I've been thinking to myself, I'm a bit surprised she decided to go to uni.

I'm thinking to myself, she should go and become, her dad's a builder, you know, she should become a builder.

Anyway, and I've been thinking about that because a lot of my friends whose kids have been going to uni, they do talk about the university experience is very different to when we were at university. And a lot of the unis are still largely online, not even a campus experience.

That's the kind of stuff where I get absolutely mad about it. So we think about what university should be. So let's design a university that works. Some of the universities get bigger and bigger, 50,000 students, whatever. It works as long as you, within the degrees, create cool functioning subunits. That's fine.

So you would want to have whatever student numbers and you would say, and the research suggests about a third of international students is fine. So more or less, there's different research, but rule of thumb, a third. So we shouldn't do more than that. That's important.

Then you want to go, well, because people say international students do not integrate into the overall student experience. And that is by design because we screwed up. So this is my research when I was at uni about friendship formation.

You make friends with whoever you hang out with at uni for the first two weeks. It is just when your daughter goes to uni, the first two weeks, she will meet the vast majority of her friends because you enter this new exciting space of your life cycle.

You're all new to this thing and you're all extremely open-minded. And so you're open to make new friendships. So cool. So you form your circle of friends and that's it. What do we do with international students? It is bloody comical. So we take them onto campus a month before we take

the locals onto campus to allow them to integrate into Australia, to get used to it. Well-intended. But so we only take internationals and we give them like one or two locals who go show them the pubs and the koalas and whatever. And you go, that's it.

So they form their friendship circles with each other. With each other, of course. International students and purpose-built student accommodation where the occupation rate is about 95% to 100% internationals. So they hang out with the international housemates. So of course they're going to only make international friends. That is by design.

That is not because they shun Australians or because the Chinese are not compatible with the Australians or something like this. That is nonsense. This is us messing it up from the get-go. We have to put on this. That is stupidity. That is something that we could fix through design and we should.

So we got the element of the unique experience.

Look, let's say in the next five, 10 years, I mean, there's going to be massive challenges with everything, to be honest. Obviously, the cost of living, we've got issues with infrastructure, we've got issues with housing, et cetera. But is there a rosy picture for Australia on the horizon?

Is there a way that we can sort of path our way through this? And Or are problems only going to intensify because structurally the system is built the wrong way?

And, you know, when you add in more people and you add in, you know, these problems are just going to get worse, as you mentioned around aged care. But obviously there's no better option potentially because you've got it so hard to change the structure.

So what's our future, I guess, and what's the realistic future?

Before we look at the path forward to understand what Australia will look like in the next 10 years, let me just compare Australia to the rest of the world. We must remember that we have all the reasons to be much, much more optimistic about our future than many other places.

Our business model in Australia is very simplistic. We do four things and four things only to make money. That is mining, that is agricultural exports, that is tourism and international students. That's it. That is all we do. That is how we create wealth in this country.

None of these four pillars are at strategic risk of being demolished. The world sees about 50 to 60 years worth of population growth, 100 years plus of urbanization. This is when you need steel. That's our iron ore. That's our coal. Electricity consumption goes up.

For a while, we thought we have another 25 years worth of electricity growth and decline. We now with data centers probably have 30 to 35 years more international energy use. So that means our energy exports will be there. Global yields in agriculture around the world are at risk. That means food prices escalate.

for the bottom 2 billion people of this planet. Great news for us as one of the biggest food exporters in this planet. Great news for us. The Asian middle class, the Asian global middle class, these are Asians that are rich enough to consume globally and they continue to grow massively.

That's our tourism base. We remain a convenient flight, a convenient same time zone, a trip away from the biggest, largest emerging middle classes in human history ever. And of course, international education. These people newfound middle-class members across Asia. They want an English-speaking university degree for their kids.

That's what we offer. Our business model does not need to be reinvented. That'll create enough prosperity. We just need to find a way to better distribute this and to better actually make sure we get enough money out of our mineral exports in particular. That makes up the lion's share. But

my home country of Germany, for example, that completely needs to rethink its business model. Forecasting the next 10, 20 years for Germany is

Impossible, to be honest. Forecasting the next 10, 20 years for Australia will be pretty close, I would say, in forecasting. So that's my baseline argument. So now let's look at our problems in-house in Australia. What do we have?

And you point, Chris, to infrastructure shortages, to skills shortages, to escalating housing costs, cost of living crisis. Yeah, there's plenty. There's plenty there to go wrong. And I think we should, of course, theoretically, try to think how could we become a more complex society. economy.

That would create more wealth. There's a thing called the Global Economic Complexity Index, where we measure 130 countries. We just say how complex, how diverse is your economy. We rank 105th, Botswana, Ivory Coast. So we are not overly competitive there.

And I'm at countless events each month where we discuss with politicians, with industry, how should we diversify the Australian economy. And the immediate, there are two easy answers that I think are both unrealistic. The first one is value-added manufacturing. That's the standard answer. We should not export iron ore and coal.

We should export steel. Life animals, we should export juicy steaks. You know, that's value-added food manufacturing and so forth. That is what creates much more money for us.

We don't do this because manufacturing in Australia is stupendously expensive, even if we automate the living hell out of the process because our electricity is much too expensive. So our electricity should be half the price.

Why is ours so expensive compared to other countries?

Dumb policies, negligent policies, well-meaning policies. But it's naive. We should be half-priced. And that should be a major policy focus. And I'm reasonably optimistic that we make energy cheaper in the coming decade, whereas I'm convinced that we make housing more expensive. That's an aside there.

It's because housing wants to be expensive. There are only players in the system, almost only players in the system, who want house prices to go up. They politically have so much more clout.

We saw that when Bill Shorten kind of, when he lost the unlosable election, he kind of said, I make housing cheaper. Yeah, through my policy. People said, how about not? This is my biggest asset. I think that's a terrible idea. And then he lost the unlosable election.

Everyone in the political system listened carefully to that, and they know that now. So nobody's touching house prices. We only make pretend policies that look like they're making housing more affordable while they do the exact opposite. First home buyer grant, super for housing, 5% home loan guarantee.

These are ludicrous policies if you want house prices to go down.

I'm just thinking, so we've got this good economy, right? Okay. I guess it's not great for the environment potentially with the energy. It's maybe not great. Obviously we've got agricultural, which is also subject to climate change, to be honest.

So maybe we're shooting ourselves in the foot there a bit, but the international students and our tourism book, you know, we're basically selling our country, right? To anyone who wants to come here and spend money here. Like there's a lot of capture cash, you know, like it makes sense, right?

But obviously housing, right, is the thing that we need to solve the most. Because if people don't feel like they've got shelter or got an ability, like, and obviously energy, we can potentially do it. You know, they're throwing out rebates on batteries and solar and, you know, but, and electric cars.

So to solve housing is what the New South Wales government's doing and say, Victorian and Brisbane to potentially a lesser extent, like around increasing density,

the right move and should they just go turbocharge on that even though it will piss off basically lots of people and it will affect house prices because it does affect people. Is that the right move?

Look at this as a SimCity style computer game. Yes, our cities should densify. Our cities have outrageously low population density.

A Australian city on average has a population density that is about four to five times lower than an equally sized European city, which in turn means that we need four times the amount of electricity wires, sewage pipeage, rails, roads. You get it, it's expensive to operate on a big canvas. Fair enough.

But Australians like the lifestyle of quarter acre blocks or big blocks, separate homes. And now we say, let's actually minimize this. Let's build more density. The town planners have it right. That is best urban planning practice. Congratulations.

The problems that, of course, any builder, any developer would tell you is that the square meter of housing On the outskirts of town, you will bulldoze a bit of land on the urban fringe.

The square meter of housing costs half of what a square meter of housing costs in medium density or high density in the middle inner suburbs. And also it's faster to build on the outskirts of town.

So if you operate a city like Melbourne, where we grow by 100,000 people a year, it's a lot of growth. Are we building the fastest and cheapest way of housing on the outskirts? Or are we building the more expensive and slower way of housing?

The urban planning documents tell you things like we want 80% of population growth to occur as infill and only 20% on sprawl because this minimizes our sprawl. That minimizes our yearly infrastructure expenditure as a city. That's good. It's good practice.

The problem is, of course, that at the point of sale, building on the outskirts of town is heaps cheaper. So that's what we do.

If all housing ever was provided by the state, which I don't want, by the way, but if it was, the equation would be different because then you would factor in long-term infrastructure costs, but we don't. If I buy a house in Taneed in Melbourne's West, That's what I buy.

And I don't pay for the infrastructure in any direct sense. And so what do I care? I buy that house because I can afford it. So we don't plan cities all that strategically.

And of course, we have the overarching long-term issue that a bit of a history lesson, if you go back to the end of the Second World War, when we were home to 7 million people in this country, we then quadrupled the population in the 80 years since. That's a lot of growth.

All the while, we went from 7 to 28 million people. We added one new city to Australia. That's the Gold Coast. The Gold Coast was the smartest thing we've done in the last eight years, for better or worse, in Australia.

I think we should have built eight Gold Coasts in the last eight years rather than one. One new massive city per decade sounds about right, but we haven't done this. And so we put ever more people into just the same amount of cities, and then we wonder why they sprawl.

It's kind of comical.

I've never wondered about, you know, other than the capitals, how a city is created. But so how was the Gold Coast created and how would somebody need to create a new city?

So in a sense, you don't usually when you build a city, you build up a tiny settlement into a gigantic settlement. We have a heap of tiny settlements. So to put this in some sort of like huge way, it is utterly plausible that in the next 80 years, we double the country.

So we go from 28 million to 56 million people. It is plausible. If you take this as a serious assumption, which it really might just be the case, where do you want to have the 28 million new Australians settle? It's a computer game.

You have Australia right now and a box of 28 million new Australians. Where do you put them? Doubling every city from Walker to Sydney to Perth would be a bit naive. We shouldn't double Melbourne and Sydney. They kind of came at the... We're maxing out the function.

So let's draw Melbourne and Sydney and Perth by one and a half. But that means... There are some cities that we should probably quadruple. There should be whole new cities that we should build.

We would then want to think where those people would want to live, where we would want these economies to settle. This, for example, would mean that most people want to hug the seaboard. So we would probably want the vast majority of those people live somewhere between Adelaide and Cairns, somewhere along there.

Mostly between Melbourne and the Gold Coast, maybe something like this. It's certain that this will happen in my humble reading. If we take this as a given, we know that new settlements will occur. We know that places like Newcastle will triple, quadruple in size, that whole new areas will spring up.

By this point in time, we must have a fast rail corridor to connect the whole eastern seaboard. That is financially speaking dumb right now, but it is an absolute necessity in 80 years. So if we were even remotely smart, we would draw this rail corridor on a map right now

And we would earmark these areas for development so that we do not need to build around development, so we can actually build cheap infrastructure in the future. This would be a simple task we could do right now. It would be cheap as chips. It would minimize future infrastructure costs like crazy.

Are we going to do this? 100% not. Because this would first of all mean... Somebody would need to stand up and say to the public, we will double the Australian population. That is unpopular. We are shying away from this. So we are therefore going to build dumber rather than smarter infrastructure.

But not only that, we need cooperation and coordination for that to happen.

Exactly. Across states, across local government areas.

Well, we're not good at collaborating across our states and territories, for starters, and with federal. I mean, yes, COVID was a great example of where there was a period of collaboration, but we know there's not a lot of unity and unity of purpose. And also we have short political terms.

You're kind of hinting at a problem there, what I would consider the politicization of infrastructure. So the infrastructure gets not built, but gets decided by politicians. It doesn't need to be this way. So that, of course, means we are not incentivizing the system to build infrastructure where it is needed the most.

We are incentivizing the system to build infrastructure where it is wanted the most. Yes. Of course, a marginal seat gets a bit more infrastructure dollars. And each party might have a pet project that just happens to service their particular corner of the city a bit more. That's silly.

We could theoretically create a system where the politicians decide on the money, the pool of the money, the size of the bag, and then an independent panel of experts. Let's call it Infrastructure Australia. It already exists. They already published infrastructure priority list.

And we then essentially say, you prioritize infrastructure, you build it, you make these decisions. We could then do bigger, grander, more long-term planning rather than the short-term political planning.

How frustrating it must be for those who work in Infrastructure Australia. We did actually do an episode on, interviewed somebody from there years ago. And all I could think of was how frustrating must that job be?

Oh, you write this list. You have all the plans of what's the best. Just put it right into the top drawer, bottom drawer probably.

Yeah, sorry, because that electorate doesn't want it. That one does. Like, what a bloody nightmare. Simon, I've got one.

Two topics I want to talk to you about, and we're running out of time. We've only got 10 minutes, and I've got to get a property number. So it's getting tight. So the AI and work from home. Actually, let's put them together.

Obviously, everyone's got an opinion on AI, but I do feel like you come with an informed opinion on it. And secondly, knowledge workers and the battle between work from home and return to the city, because that's huge impact, right?

Like, you know, building these cities, if you have to be in the office, then it's different. So what's your take on where we are in these debates and how intrinsic are they into where we're heading?

So if I look at AI, I'm of course not the technical expert. My main view of AI is that quite a few tasks that we do become super fast. They might become instantaneous or much faster. If you write an email with AI, it's faster. So you save a bit of time.

You can read an annual report much faster with the help of AI by asking questions. You might be able to create a PowerPoint presentation faster. You program faster. So that to me tells me that quite a few of the technical tasks that make up our work life, they become much faster.

These happen to be the work tasks that I might as well do from home. Because why the hell do I need to sit in an office with noise-canceling headphones to write emails? That makes no sense whatsoever. Each job also has more interpersonal, creative tasks that require me to work collaboratively with other people.

These tasks can be done by a Zoom or something. That's fine. But we know that they're better in office. And so as AI gets thrown at the workforce more and more, the chunk of the pie chart of your day that is made up of technical tasks, that shrinks.

And the part of the pie chart that makes up your interpersonal tasks that increases. So the world of work wants to be going back to the office more over the long term. So I think that AI actually humanizes the world of work, which in turn puts more people into the office.

That is quite remarkable. Of course, we also consider that we move away more and more from an industrialized economy into a knowledge economy. That means more people have a job that kind of sort of takes place in an office. So that increases. And of course, we continue to grow the overall workforce.

So I think that the office towers that in a city in the long run will be just fine. I am not concerned about the exact timing of this process because I don't own billions of dollars worth of office hours. So what do I care?

But in the long run, I see more drivers push people back into the office. This is well beyond the idea of where do workers want to be and what do bosses want.

And then if the mining sector is automating and the agricultural is automating, you know, as in using a lot of technology to do stuff, and then we become more of a service knowledge-based economy. But then that just, it's really hard to start an office.

Like you can't start a city and get talent and start a, you know, because why would I move to this new region? Because my job prospects are very limited.

You would move to the new city. We wouldn't build 12 new cities at a time. You'd build like one or two at the same time. And you're moving there because you're incentivizing cheap housing. It's just that simple. The new city would need to be connected really well to the next place.

So you have people moving there. Ideally, you would relocate part of the university campuses there. So you have this kind of part of the element there. And then you grow the workforce from out of the university as well as a kickstarter and

You make it very attractive for businesses to settle there by giving them like small tax cuts and so forth. So it can be done. The Gold Coast works. The Gold Coast, of course, isn't 100 kilometers away from Brisbane. It is in reasonable distance. And so... That's how you would think through this.

You know, the next city wouldn't be in the middle of nowhere. The next city would be within an hour's drive or two hours drive of the next thing. It can be done. I think that AI will humanize the world of work. It's definitely here to stay.

And I'm convinced that in Australia, unemployment will remain low because, as I mentioned at the beginning, the skill shortage is so severe that this won't be wiped out at all.

What's your thoughts then on inflation? And, you know, you can see the demographics, you can see that we've got all this migration, this demand in our system competing over, you know, a finite amount of resources.

Is this, and a global sort of challenge with this, like, do you sort of see when you look at it from a demographics point of view that where, you know, this is a trend that will go back to low inflation, low growth, you know, you mentioned about low unemployment, or do you think that inflation is going to stick around?

If I look at decade ahead, demographically speaking, we want to have hyper, hyper high consumption in the next decade because we push the biggest generation ever, the millennials, through the highest spending phase of the life cycle, the mid-40s.

All the while, as we retire the baby boomers, most of them are already retired, so we have detailed spending data about them, baby boomers in retirement increase their spending. So you have the richest generation, boomers, and the biggest generation spent more money than ever in the next decade. That should be inflationary.

It's great news if you're Harvey Normans, if you're barbecue lawyers. You know, all the businesses that help you to fill your house with crap, they have a killer decade ahead. Great news for them. But that is inflationary in nature.

There's more that feeds into inflation than just consumption, but consumption demographics suggest higher rather than lower inflation, which of course means the RBA, which has one tool to calm down inflation with the cash rate, they would probably need to have the cash rate higher rather than lower for longer, which in terms means that these interest rates, I wouldn't expect them to go down.

That is an interesting way of looking at it. Property Dumbo for us?

Well, the property Dumbo at the moment, I would say the dumbest thing is to think about median house prices because the median, of course, is the middle house. It's the middle house. You line up all the house prices. The median house is the one in the middle.

It's a very useful measurement if your society resembles a bell curve. A couple of rich people, a couple of poor people, most people in the middle. Median measures are useful there. What we have in Australia increasingly is a U-shaped society, literally the opposite of a bell curve.

In that thing, the median house, yes, it moves a bit more, whatever, if housing gets more expensive. But what a pointless measure, because the rich people, they wouldn't be seen dead in a million dollar home in Sydney. And the poor people, they could never ever dream of affording a million-dollar house in Sydney.

So it is a kind of a silly measure. It is a useful measure if you look at the median house price for a three-bedroom house in Surry Hills. That's okay as a measure. The median house price per city, I'm like, it's a bit of a silliness.

I'm so with you on that. And in fact, very recently, add to this Dumbo, the Office of Fair Trading in New South Wales is proposing new legislation around underquoting.

And one of the things that is on the table is a statement of information, which you have in Victoria, where the agent prepares a statement of information for buyers that shows their most three recent relevant sales that back up their estimated selling price. But also on this proposed form is the median

price for the suburb. And I've just gone back and I said, that is meaningless. It's ticking a box for the sake of ticking a box. It gives no meaningful information to a buyer. But if it's going to be the median for a three bedroom house in this suburb, fine.

But the reality is even that you're using such a small data pool when you cut it down to when you drill it down to that level. It's more meaningful, but you're statistically unreliable amount of data that you're using. So it's an absolute crack up. So I love that Dumbo.

I'm in full agreement of it.

Fantastic. Thanks so much for coming on, Simon. Absolute pleasure.

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