April 2026
(Based on a Redwood Dinner)
“I had always hoped that this land might become a safe and agreeable asylum to the virtuous and persecuted part of mankind, to whatever nation they might belong.”
– George Washington
“I started getting more and more active around immigration reform because this was such a waste of lives, such a waste of potential, such a waste for our country not to have the human capital that we developed – geared toward improving our entire society.”
– Laurene Powell Jobs
This is a continuation of the previous essay here but with a skew towards addressing axioms about how immigration and real estate interact with each other and why a lot of views that are popularly held are actually super wrong. I was thinking about calling it more axioms in real estate that effect everything when I realised that basically the last few points were all about immigration so I feel it deserved it’s own essay.
Immigration, Apartments and Houses Aren’t in Sync
Apartment markets and house markets move in opposite directions. When apartments are booming, houses are usually going down in value and when houses are booming, apartments are usually going down in value. Common real estate statistics like median dwelling value don’t differentiate about the type of housing and how each market operates independently of the other. But it means that the dwelling value number is kind of meaningless if it includes 2 types of housing that move in opposite direction to each other.
But here’s an obvious point, there are more apartments than there are houses. When a developer builds an apartment building, they are building apartments hundreds at a time. So the apartments are a bigger piece of the average or aggregate dwelling value numbers. The apartments are a larger component of all the statistics used to measure housing markets than the houses are. For example, houses might be growing a lot but apartments are going down in value and this will slow the average value number growth in the statistics.
But this doesn’t help you if you’re trying to buy a house and not an apartment. Similarly when the average numbers seem like they are growing a lot, this is because the apartments are growing a lot and the houses may not be. This is a roundabout way of saying all the housing statistics that everyone relies on in the media are almost completely useless because they don’t have the level of granularity to show what is actually happening and can influence your purchasing decisions.
The reason the apartment and housing markets move in opposite directions is largely caused by immigration because immigrants want a different type of housing than Australians do. They follow a different housing trajectory. Immigrants generally want inner city apartments but Australians generally want houses with backyards. Those immigrants generally are happy to start families in apartments in a way that Australians generally are not.
The immigrants after starting families and raising kids in an apartment then jump straight to wanting an outer suburb 4 or 5 bedroom house in a good school zone so their kids can go to a good school and they can take care of their parents, who will live with them as is culturally preferred. This is why usually in high immigrant suburbs the houses are larger to accommodate that larger family cultural preference. Housing is a lagging indicator of demographic preferences, people want something first then the housing is built to accommodate it, literally.
Australians generally don’t take care of their ageing parents or have them live with them culturally, they’re often admitted to nursing homes, so they want houses that don’t have the extra ground floor bedroom and instead want a larger backyard and want to minimise commuting times and be closer to amenity like restaurants and shopping centres. The typical Australian doesn’t want to raise a family in an apartment and so jumps straight in their family formation phase into buying a house, usually a smaller inner suburb 3 or 4 bedroom house or townhouse with a backyard.
The Australian buys a smaller house because they deploy the capital and buy the house earlier so they can only afford a smaller place that is closer to amenity and nightlife. Whereas the average migrant saves for longer and eventually buys a bigger house, generally. The general Australian cares more about amenity and travel time and restaurants in a way that generally immigrants do not care for. That’s why the immigrants are willing to sacrifice amenity and travel time for large houses further away. Having multigenerational households, they generally cook a lot more also.
Do you see how many times I’ve used the word generally? It’s because these are generalisations, it obviously doesn’t include everyone but it includes enough people that it’s a reliable predictor and axiom of people movement and demographics. Why do immigrants prefer apartments? It’s because apartments are cheaper and also their home countries are more acclimatised to apartment living. Most people living in China, India and Europe for example, 3 of the largest population countries and areas in the world will never live in a house. They will live in an apartment over their entire life. The whole idea of a house is a foreign one for these people. So immigrants from those countries don’t just not want a house, they prefer an apartment.
They’re actually different markets and different lifestyle and purchasing pathways and as a result immigration doesn’t actually boom housing very much. This is contrary to just about all popularly held opinions. You can see the evidence for this in the pandemic where immigration declined considerably but house prices still increased by a lot. Read that sentence again. Immigration went down by a lot, to the tune of millions of people leaving, while housing went up in value by a lot. That’s as clear a sign that is possible that these things aren’t connected. It’s because the Australians were still competing with each other to buy the houses.
But you know what did decrease in value by a lot in the pandemic when we lost all the immigrants? Apartment values and rents decreased sharply. Because that’s the market that immigrants are generally operating in. When immigration disappeared the only thing effected by it was apartment values. So when people say things like immigration drives up house prices, it actually doesn’t, it drives up apartment prices and because apartments represent a larger component of the housing statistics than houses do, the statistics move because of immigration but this is meaningless to the underlying house statistics, it’s only relevant to the apartment statistics.
The pandemic was in fact the perfect experiment to see what happens to housing when millions of immigrants leave the country and we don’t take in anymore immigration. It did absolutely nothing for and in fact the opposite for the house market which grew a lot, while cratered the apartment market. So anytime you hear someone say that immigration is driving up house prices, you can mentally discount their entire view because it’s just not accurate. It is alarming how many people believe this but it isn’t correct.
The people that drive up the house prices are the Australians and we can’t get rid of those people anytime soon. Apartments and houses are not the same market and they don’t have the same people demographically operating in them, generally. What is a correct statement is immigration is driving up apartment prices and maybe at a stretch outer suburb house prices but usually by this point those people are Australians themself. While inner suburb house prices that are the most competitive are being driven up by almost exclusively Australians. Where you decide to buy and what you decide to buy determines the demographic preferences you are competing against.
The Government is a Business and Who Pays the Taxes?
It’s helpful to think of the government as a business with income and expenses and their product is a well functioning society with all the measures of a good society like the happiness and life expectancy of the population. If you have a population that lives for a long time and is happy during their life, that means the society product of that government is a good one. The governments do this by shaping the rules and laws that its citizens have to live by and the taxation system that charges those citizens to live under those rules.
Each country has a different government with different values that each produce a different society product. The Indian government produces a different society than the Australian government produces for example. An informal way to measure this is to look at immigration flows. If Australians are not leaving Australia or if the country is accepting more people than we’re losing you can say that the society product made by the government is flourishing. Because more people who aren’t experiencing it want to move there and the people who are experiencing it aren’t leaving. Similarly you can see the societies that are in decline by looking at the immigration flows of their nations. If more people who live there are leaving, then they’re not happy living under the rules of that government.
In Australia the income to the government comes in the form of taxation revenue which is generally income taxes, consumption taxes, property taxes and business taxes. The government expenses are the infrastructure and systems of society, things like roads and police and energy and water and hospitals. In Australia we also believe in wealth distribution so we have a large welfare safety net where the government charges higher taxes on rich people to fund free healthcare and education for poor people. Personally I really like this and I love the system that developed. I believe rich people should fund the taxes to take care of the poor people.
At a glance with round numbers, Australia’s government revenue comes from 40% income taxes, 20% company taxes, 20% property taxes, 20% consumption and other taxes like the GST. Since this essay is about property, to draw equivalency, government brings in about as much revenue from property as it does from all it’s businesses combined or all the consumption spending in the nation. But the biggest component is income taxes representing double all the rest.
So property is a big chunk of the governments revenue stream, it’s equal to all of the companies and all of the consumer spending but philosophically I like it the best because it’s the only tax out of all of the categories that exclusively is paid by wealthy people who own property. Whereas all the other taxes are paid by everyone in society. Only wealthy people own real estate and so they’re the only ones who pay property taxes. So I like it the best. It’s the only tax that I’d call philosophically aligned with the ideas of taxing exclusively the rich and distributing to the poor.
But lets add a few additional conceptual layers here. Since the government makes money from taxing its citizens, it also spends money on its citizens in the form of roads and free education and healthcare. Children for example aren’t earning income that can be taxed, so on a cashflow basis cost the government money. There is an equilibrium social contract in every Australian citizens life where the government spends money on them throughout childhood raising a person who is healthy and educated until the age of about 20 when that person starts working and paying taxes.
In an ideal world the worker will repay everything the government spent on them via taxes and then continue paying even more so the citizen becomes “profitable” to the government. The person will pay more in taxes over their life than they cost to raise. Then in their old age if the person didn’t create enough wealth themselves to have a fulfilling retirement, the government will take over again and take care of the person in their elderly years via pensions.
We want our governments to be profitable and earn more money from its citizens than it costs because it is how the society product flourishes. We are all collectively pooling money into a large pot called the country of Australia and we trust our elected officials to govern appropriately and honestly to spend the money collected effectively to make society as great as it can be. Generally I think Australian governments do a good job and if you offer the people who complain about the government the option to move to Mexico instead, they will politely decline the offer.
Australians aren’t profitable to the government until they’re about 40 years old and over because of how much the government has to invest matriculating the person and how much in subsidies like infrastructure and healthcare that each family gets. Because of the government subsidy for school and education and daycare and medicine is so high plus the quality of our infrastructure like roads and hospitals is so good, the average Australian loses money for the government until they’re over the age of 40 before they start returning money via taxes.
If an Australian was a balance sheet number for the government they’d be costing money for 20 years at which point they’ve graduated from school and start working and paying taxes. It takes 20 years of working and paying taxes to repay what the government has spent on that person up till then and only the working years from 40 to 60 is when the government makes money from that Australian. This is primarily from income taxes and also property taxes like stamp duty when that person buys a house. Immigrants conversely, the government doesn’t have to spend anything on education and healthcare and can start earning money from their taxes as soon as they arrive.
This is why the average immigrant is more profitable to the government than the average Australian. Because the cost of those early years of education and healthcare is paid by a different government elsewhere in the world. This is why immigration is such a good thing for a countries treasury, it’s a net profitable exercise because it’s bringing in people who are of working age that immediately start paying income taxes, consumption taxes and property taxes to the government and buying housing.
This is why the most profitable person to immigrate to Australia is an international student. Every 20 year old that immigrates to Australia is a net profitable person because their taxes are immediately more than the government has spent on them. Because an Australian is only profitable to the government from the age of 40 to 60, while an immigrant is profitable to the government from the ages of 20 to 60. The government literally makes double the amount of money per immigrant via taxes than it does per Australian. The ages of 20 to 40 for the Australian is just to recoup the investment in that citizen.
The taxes every immigrant pays on a country level balance sheet basis is more than an Australian pays over a lifetime so in a perfect world if you were the government you wouldn’t have any Australians and you’d have only immigrants. That is of course not possible since the immigrants eventually become Australians and their children start life as Australians. In an imperfect world what the government does is use the immigration golden goose to offset the cost of the Australians born here to maintain the high quality life and social welfare safety net.
This is exactly what we did and we live in that perfect world right now. One of the reasons Australia is such a prosperous country is because we have sustained long term levels of high immigration because we’ve created such a desirable society product. Those immigrants are who are footing the on balance sheet tax bills for the Australians to receive high amounts of subsidies and welfare. The system that provides Australians a high quality of life with a large welfare safety net relies on high amounts of profitable immigrants to arrive and work and pay taxes.
If you reverse immigration, you will reverse this effect and Australian are actually the ones who will suffer more than the people who want to immigrate here. This is something people don’t think about when they call to reduce immigration, they think it’s in the best interest of Australians but actually those are the very people who will get hurt by it because they’re the ones getting subsidised by the more profitable taxation revenue to the government that comes from high levels of immigration. But this is a complicated economic phenomena and goes over the head of your average Australian at dinner parties.
But here’s another reason why Australia is so prosperous, it’s because we are a property centric economy and all the incentives line up to support this. Getting people to buy houses is the single most important thing the government can do for its citizens and for the governments balance sheet. The reason is because and will sound obvious and like a joke, but the way to fix homelessness and housing insecurity is to buy a house. But the second and third order effects of this are enormous and unseen.
If you don’t buy a house in your lifetime there is a 90% chance you will end up on the aged care pension and the government will have to take care of you in old age. If you do buy a house and pay it off there’s a 90% chance you won’t end up on the aged care pension. The only fix for this is to become a home owner. When you buy a house conversely, 1) you’ll pay a fortune in stamp duty taxes straight to the government but 2) you’re now only 10% likely to end up receiving the welfare aged care pension in retirement. The government wants its citizens to buy homes so they aren’t reliant on welfare and cost the government a fortune in retirement.
It is literally as binary as can you get the person to buy a home or not which determines whether that individual will cost the government a fortune in retirement and pension subsidies or not. And if they do buy a home, you get more money from them via property taxes. This pendulum of subsidy vs tax income swings very wildly. To contextualise this the aged care pension costs the government 3% of GDP in spending per year which is about as much as the military spending of 3% of GDP. A couple retiring at 65 that doesn’t own a home can expect to receive close to $1 million in pension over the 30 years till they’re 95 years old, if they live that long.
There’s a window of time from the age of 30 to 60 that the government has to incentivise its population to purchase adequate shelter in the form of a home. If it doesn’t do this, then that person will likely end up either homeless or in their retirement years entirely reliant on social welfare payments like the pension. This is an underappreciated incentive of the government and is why the system is built like this. The government really does not want its citizens in retirement to rely on a pension, it wants its citizens to build enough wealth through their working life to be self sufficient. The safest and most reliable way to do this is property investing because it also forms a part of the persons shelter and is their home.
So getting an individual to buy a home between the age of 30 to 60 will simultneously earn the government on average of $100,000 in property taxes but will also save the government on average of $1 million in retirement pension subsidies. So in a macro sense every family it can get to buy a home saves the government over $1 million in lifetime spending on that Australian. So the government really really wants its citizens to buy houses. If you add this up with property representing 20% of all the taxation revenue collected you end up in this place where all the incentives are aligned in the country for people to buy homes and for homes to be as expensive as possible.
Because if a property is worth a lot, the taxes proportionally are much higher since they are charged on the home value. Stamp duty taxes for example is around 5% of what a home costs, if the home is worth more then that 5% in taxes is more money in revenue. But also if the home is worth a lot, that person in retirement that owns the home is wealthier and less reliant on the government for an aged care pension. If you can say that it saves the government $1m in aged care pension by getting an individual to buy a house then it can spend much more than that on subsidising the housing sector to build more homes for those people to buy. This is why government subsidising of the housing sector can be so powerful because it saves the government more than it spends in the reduction of the aged care pension. The aged care pension is especially set to balloon as populations get older.
Let’s layer on that 75% of the country is transacting with minimal debt and is therefore happy to transact under these conditions from the previous essay. There are no forces or incentives working in opposition to these forces and nor do we as a society want there to be. If you for example get people to stop buying houses or you reduce the increase of house prices the government suffers in a dual way of needing to spend more on social welfare payments and reduced income in the form of property taxes. We don’t want our governments to have to both spend more and receive less income because society writ large suffers.
Some might say this is sort of ponzi scheme but I don’t think so. I think it’s a really sensibly designed system. The fundamental nature of a ponzi scheme is that there is no income to support the transfer of the inflated asset and it doesn’t save more money than it cost. But in fact here, this is an asset with a liquid buyer pool and generates tremendous amounts of income. I’d even go so far as to say it’s the opposite of a ponzi scheme, whatever that is. Something seemingly so safe and so secure and saves so much money that we completely oriented our entire society and government taxation systems around capturing the value from its tailwinds. It’s why when the housing market is frequently called a bubble I think as opposed to what?
Let’s add some other phenomenas to the property picture. 80% of the capital gains discounts go to the top 1% of income earners but another way of reading that statistic is to say that 1% of the people pay 80% of all the capital gains tax. Anything you do to mess with that 1% of people actually effects the entire 80% capital gains tax base that you collect. So you need to be really careful when changing tax rules that you don’t accidentally wreck your golden goose of 80% of the income. But also those 80% of capital gains tax payers are the primary demand that purchases investment properties that creates the demand for the housing sector to build more houses. If they’re not buying houses then developers are building less houses.
Similarly about 50% of the state revenue comes from stamp duty taxes, if you mess with the housing market too much, it effects half of your states revenue, the thing you are relying on to fund the state and country. Without that revenue, rubbish bins stop being collected and roads stop being maintained and people die of preventable illnesses in hospitals that have their funding cut. That’s what happens when the housing market goes down because of how the system is set up to be so reliant on the tax revenues that come from housing. But this is a good system because the revenues from taxes are predominantly charged to rich people, which is a perfectly created progressive tax system.
If you want to buy an expensive mansion, it’s is a good thing the government takes its pound of flesh and collects the taxes from you because you’re the only one who can afford it, as evidenced by the fact you’re buying million dollar plus houses. You don’t have to buy that multimillion dollar mansion and so you can save that tax. But people want larger homes and they have agency over whether or not they elect to upgrade their home to pay this tax. The rich people are choosing to pay the tax when they elect to buy their mansions.
Immigration is a Solution to the Housing Crisis not the Cause
We’ve already established above how profitable immigration is for the governments balance sheet and we’ve already established how immigrants don’t contribute to the housing crisis as much as is popularly believed. Let’s now take this thought experiment to a place that is really uncomfortable, that immigration is actually the solution to the housing crisis. That maybe the contributors to the housing crisis is the same thing as the fixes for the housing crisis. You have to grow your way out.
In Australia we have a trades shortage in the construction sector. We don’t locally graduate as many skilled trades as we need to build the houses that we need to build our way out of a housing crisis. This is professions like carpenters and plumbers and electricians. One of the obvious reasons is because these are crafts that require a high degree of training and skill but are also physically demanding jobs that require you to be on construction sites in the sun all day long. People would much rather if they have the choice, work in an office in air conditioning all day than lifting heavy things in the sun all day.
Because there’s a lack of supply of skilled labour, supply and demand takes over and the labour we do have increases their prices accordingly and become expensive because they physically can’t meet the demand to build the number of houses needed. This leads to construction cost inflation with the most extreme version of this is from 2022 to 2025 where the cost to build a house basically doubled.
To double in 3 years means construction costs were growing at around 26% per year. But long term over a period of 30 years construction costs generally increase at a rate of 3% per year. A long established formula in the construction industry is costs go up around 1% above whatever inflation is so if inflation is 5%, you can expect build costs to go up 6% that year and so on. If inflation is around 2% then construction costs will go up around 3% and is how you get that long term number.
Since we don’t create enough tradespeople to meet this housing construction demand the only solution is immigrate them or dramatically increase the number of Australians who want to go into trades. But similarly we want to keep the quality high, we only want to bring workers from abroad who will adhere to the Australian standards of high quality. If you’ve ever been to India you’ll see that the footpaths aren’t flat or level and people fall over all the time when just crossing the road. We don’t have that problem in Australia because we maintain high quality standards.
We never want to dilute the construction standards via the importation of overseas labour and the unions are the enforcers of this via industry protectionism. But if the overseas people meet the qualifications then we immigrate the labour to help build the houses. So you need immigration to bring the skilled workers in to build the houses, even though those same workers also need houses themselves and are part of the demand for houses.
A way to think about this is a skilled worker will live in 1 house but might build 20 houses per year. So yes even though they push up housing demand, they’re still required to help build the new houses. Society gets stuck thinking about the demand and not the supply. They think about immigrants as being part of the demand for housing and not part of building the supply of housing.
It’s worth highlighting that the property and construction sector that builds these homes is already the 2nd largest source of employment for Australian citizens and immigrants alike in the entire country. Yet we’re still in a steep undersupply of trades and workers and is one of the major contributors to the housing crisis because we don’t have the labour to build the houses as fast as we need them. We have to build our way so we need to get more high quality trades people however we can.
It’s also a little hard to tell whether a tradesperson is skilled or not without seeing the quality of their work. People think about tradespeople as a form of human robots that do repetitive tasks daily but actually really talented tradespeople are problem solving artist craftsmen who solve hundreds of problems daily by constructing solutions on the fly. If you can emigrate high quality trades via immigration then this will be a net positive for the construction sector and allow us to solve the construction trades shortage by building more houses than immigration costs us. This allows us to build more houses and fix the housing crisi, not add to it.
We’ve now added a lot of additional complicated economic real estate axioms that are already complex enough as is. We’ve layered on lots of different types of understandings in a way that hopefully allows us to see the real estate market with a high level of both granularity and big picture concepts. We can hopefully now see the forests from the trees and not get bogged down in one dimensional thinking. We can see through the bullshit and see how it all interconnects and how it all works and not get mislead by the media and politics.