The Enormous Hidden Cost of Population Growth

[Published in the Canberra Times, 22 Feb 2016.]

CityWorkers Australia’s population just passed 24 million and former Australian Foreign Minister Bob Carr, unusually for a very public figure, reckons we’re growing too fast.

He cites the pressure on the housing market, clogged infrastructure, and the greater difficulty of limiting greenhouse gas emissions. At some point we will exceed the carrying capacity of the continent, and perhaps we already have. Those are all sound reasons, but they tend to be brushed aside by the growth lobby, partly because the numbers are hard to pin down.

But what if we knew that cutting immigration in half would save us $50 billion or more per year? According to some little-noticed papers by development economist Jane O’Sullivan, population growth costs us over $500,000 per person added.

Our population has been increasing by about 400,000 per year, more than half from immigration and the rest from natural increase. The total cost to us is therefore around $200 billion per year. A much slower growth rate could still leave plenty of room for having babies, for immigrants and for refugees.

Bob Carr says we have a third-world-style growth rate. That’s interesting because back in 1986 economist Lester Thurow argued that developing countries could not progress if their population growth was as high as 2% per annum.

Thurow’s reasoning was that such a country would be scrambling to expand its facilities – more houses, more farmland, more roads and so on – and would have few resources left over to invest in a better future. Our growth rate has been running around 1.5% or more, the highest among major developed countries.

O’Sullivan’s numbers are big enough and immediate enough perhaps to focus some minds, so how does she get them? Basically she follows Thurow’s lead and looks at the cost of expanding what she calls durable assets. These include infrastructure like roads, dams and train lines, but also houses, schools, shopping centres and even the education of a skilled workforce. It makes no difference whether these things are paid for by the government or by private enterprise, the cost still comes out of our total effort every year.

For example, major infrastructure typically lasts for about 50 years. That means we have to replace about 2% of it every year, on average. What the bean counters call Gross Fixed Capital Formation (i.e. infrastructure) cost $283 billion in 2010, about 22% of GDP for that year. So the cost of just maintaining our infrastructure is very large.

Now here’s the key point. If our population increases by 1% in a year then we have to build extra infrastructure. Instead of building 2% of total infrastructure, we have to build 3%, half as much again. So, working backwards, that $283 billion bill comprised about two thirds replacement, $190 billion, and one third addition, $93 billion. Today that $93 billion would be well over $100 billion, and that’s only part of the cost.

That example just illustrates the logic of O’Sullivan’s argument. Over several studies, she has looked more carefully at the kinds of assets requiring expansion, their lifetimes and costs, and various complicating factors. The result is that a population increase by 1% per annum uses about 7% of GDP. For Australia with a population growth rate around 1.5%, the cost is more than 10% of GDP.

That’s a huge impost on our national effort, around $15,000 per taxpayer. The total would easily pay for the National Broadband Network in one year. It would pay for a lot of high-quality schools, hospitals and public transport.

But of course, in this age of cost-cutting, governments do not pay the full cost of expanding our infrastructure. Engineers Australia says we are falling well short of maintaining our infrastructure properly, so our cities are choking and our long-distance transport is second rate.

Why has this huge cost been overlooked? One reason is that the cost shows up in many different parts of our economy, some public and some private. One large effect in the private sector is to push up housing prices, but malfunctioning banking and investment policies also contribute to that problem. Governments are happy to leave the public costs scattered through many portfolios so the total is effectively invisible.

One of the unstated reasons for pursuing rapid population growth is that it keeps the GDP growing and allows politicians to proclaim “growth”. However GDP per person has in fact been increasing only slowly and sometimes not at all.

The other major reason is the familiar one that certain interest groups push their selfish interests at the expense of the rest of us. Those would include the building industry, that benefits directly, and those who just want to see their business expand through no effort of their own.

Even with broad ignorance of our population growth rate and its implications, most voters do not want a big Australia. 51% think Australia does not need more people and 67% do not want the population to grow above 30 million. Only 5% think 40 million plus is a good idea.

We need a better-informed and more balanced discussion of the rate at which our population expands, as well as of a sensible maximum for our total population.

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One thought on “The Enormous Hidden Cost of Population Growth

  1. Mark Allen

    Thank you for pointing out the relationship between rapid population growth and our growing infrastructure debt. This also has huge repercussions in terms of how we can engage in sustainable town planning.

    According to current thinking we have two methods to absorb population growth sustainably. The first is to increase the density of the middle suburbs by encouraging owners to subdivide. This is fine up to a point but this process takes time and it cannot keep-up with our current rate of growth in Melbourne which is at almost two thousand a week.

    The other option is to regenerate old industrial land (or brownfield sites) However, the proposed Fisherman’s Bend urban renewal project has been on the drawing board for a long period, yet upon completion, it will absorb less than one year’s worth of population growth.

    Therefore the default position for rapid growth is suburban sprawl where land is cheaper and more plentiful. There are many who think that the current spate of high density apartment developments springing up in the inner suburbs will help to prevent this sprawl but sadly as much as 90 percent are one bedroomed (or less) and are therefore aimed at a single demographic. They are also too expensive to be within reach of the demographic that would otherwise live on the fringe.

    If we want Melbourne to adapt to a sustainable low carbon future, we need a slower rate of population growth for slower more considered planning outcomes.

    I have written more about this topic here: http://www.candobetter.net/node/4682

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