More RBA housing propaganda exposed

By Leith van Onselen

For years RBA assistant governor, Luci Ellis, has tried to argue that part of the reason why Australian housing is so expensive is because it is far more urbanised than other comparable economies.

For example, in 2013 Ellis said the following:

Part of the perception of supply constraints comes from our view of Australia as a big country. Yes, we have a lot of land. What we don’t have much of is land where people actually want to live. In general, desirable land is the land within or adjacent to existing settlements. Australia’s population is heavily urbanised compared with other developed countries, let alone most emerging countries.

It is also quite concentrated in a couple of large cities (Graph 6). So the range of acceptable locations is actually more limited than the map would lead you to believe.

ScreenHunter_17548 Feb. 20 10.31

And in last week’s speech, Ellis made a similar argument in trying to explain the gaping dwelling price difference between Australia and the United States:

What we can do is get some sense of the relativities between countries that you might expect, given those institutional and other differences. For example, we can reasonably expect that countries where much of the population lives in smaller, cheaper cities will have lower national aggregate ratios of housing prices to incomes than other countries. That might partly explain why the price-to-income ratio for the United States is relatively low.

Last year, Gareth Brown at the Bristlemouth Blog showed comprehensively that that the RBA had juked the stats on urbanisation rates by wrongly comparing the greater metropolitan areas of Australia’s cities against only the central inner city areas of other nations. This is why Australia’s urbanisation rate is around 75% versus just under 30% in the United States (see above chart).

According to Brown:

If we take the list of US cities by population from Wikipedia, there’s 297 cities with a population greater than 100,000, and the total comes to 90.5 million, or 28.4% of the total US population. So far, the RBA’s numbers look spot on.

But any demographer worth their salt, or any competent person tasked with putting together a chart on urbanisation, knows that US urban populations are defined very differently than those in Australia…

The most accurate like-with-like comparison is to use the combined statistical area of America’s largest cities, it’s the closest equivalent to how we measure city size in Australia. In that case, 239 million people live within the greater metropolitan area of cities greater than 100,000 people. That comes to 75.0% of the US population, very similar to Australia’s 77% and very different to the less than 30% claimed on the RBA chart. Is America also too urbanised to be susceptible to a housing crash?

And it’s not just the US numbers that are wrong. The chart show France’s population at about 15-16% ‘urban’. But more than 20% of France’s population resides in Greater Paris alone. I make the like-with-like number, for direct comparison with Australia’s, closer to 56%.

Italy 22%? Try north of 40%.

Spain at 40%? More like 60%.

South Korea 45%? Ha, more than 50% of the South Korean population live in the Seoul greater metro area alone.

Germany a little over 30%? Please. Almost 52m people, 64% of the German population, live in the greater metro areas of its ten largest cities alone.

Following Ellis’ latest speech, Gareth Brown penned another blog post comprehensively debunking the RBA’s argument:

I thought my debunking last year was comprehensive. Nobody argued the contrary. One of our readers emailed a copy of the blog post to the then RBA Governor, Glenn Stevens, and Head of Financial Stability Department, Luci Ellis. The latter had been a staff member perpetuating the myth in the first place. That reader received a response from an RBA Communications Officer. My post had been forwarded to both Stevens and Ellis…

It’s to be expected that nobody called to discuss it with me, these people are busy. But it’s disappointing to see Luci Ellis back out on the circuit spouting the same rubbish…

The table below lists the 8 largest cities in Australia by greater metro area population. In the next column is the cumulative percentage of Australians living in cities that size or larger. To clarify, 21% of Australians live in Sydney, 41% in Sydney or Melbourne and so on. It’s true that we are quite urbanised. But we’re not alone.

In the next column is the percentage of Americans living in cities that size or larger. This measure is done using combined statistical area. So 37% of Americans live in cities as big or bigger than Sydney, and 51% in cities as big or bigger than Brisbane. You can get data for both Australia and America from Wikipedia.

ScreenHunter_17549 Feb. 20 10.56

In contrast with what Ellis is claiming, here are some facts:

  • 29% of Americans live in cities larger than 7 million people, versus 0% in Australia
  • 37% of Americans live in cities as big or bigger than Sydney vs 21% in Australia
  • 51% of the population in both nations live in cities as big or bigger than Brisbane
  • 72% of the population in both nations live in cities as big or bigger than Canberra
  • 76% of Americans live in cities larger than 100,000 people, slightly lower than the 79% in Australia…

It’s time for RBA staff members to stop spreading this nonsense and perhaps book into a Demographics 101 course.

I will simply add that Gareth Brown’s analysis is supported by Gerard Minack, who compiled the below chart showing median house price/median income ratios for Anglo cities:

ScreenHunter_15729 Oct. 27 11.41

As you can see, housing in Australia is incredibly expensive even outside the major capitals. In fact, there are no cities with less than 100,000 people where house prices are over 7 times income – aside from Australian cities.

Yet again, the RBA propaganda has been caught red handed juking the housing stats to maintain confidence in Australia’s housing bubble.

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Leith van Onselen
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Comments

  1. lulz US, France, Germany, all primarily agrarian economies less urbanized than India apparently. Even Canada is three times as urbanized as the US according to this.

    Do they even care about their credibility as economists?

  2. At some point we need to deprive these hacks of their oxygen. She also says debt levels are OK because property investment debt is mainly held by high income households……..in complete contrast to the two buffoons aka the Treasurer and the PM.

  3. Places like Newcastle which I have been looking at, are extremely unaffordable relative to incomes. Same with Albury / Wodonga etc.. Sure they are “cities” but not “cities” in the true sense of the word.

  4. The RBA own this bubble and now seek to deny its existence
    We are being deliberately misled by the custodians of monetary policy and financial stability
    Ellis has been lying about this data for the last ten years
    When will she be held accountable?

  5. Wow, that is some seriously sloppy work from the RBA, so sloppy I’d agree that it looks deliberate. I mean it doesn’t take much time on Wiki for a mug punter to figure out you need to use at least the Metro population for US cities to get some comparable figures with Australian cities, otherwise you are just looking at what we’d call the CBD, or inner ring.

    For the RBA to get this wrong is a total disgrace. It’s all post-hoc justifications for the absurd bubble our political class has encouraged to grow over the past 20 years.

    • It’s either deliberate or they’re the most incompetent central bank on the planet (and there is some serious competition!). I say it’s deliberate.

      • It’s deliberate. Of course it’s deliberate.
        Ellis is deliberately misleading the Australian public to conceal the RBA’s role in grossly inflating house prices and her gross dereliction of duty as head of financial stability for the last 8yrs.
        And no one is calling her on it.

  6. Imagine if business confidence and consumer sentiment were part of GDP. We’d be world leaders!

    The RBA is producing heaps of sentiments

  7. MB, hats off for the effort in getting together the information on this topic and speaking up and writing about it. Understand can be difficult but here’s wishing you all every success for the courage, strength and leadership you have shown on the topic. Not long to go for vindication I think. Keep strong

  8. Have a look at this. Outdated inside (check out the kitchen). Nothing remarkable to speak of – $4.95 million
    https://www.domain.com.au/47-stanley-street-chatswood-nsw-2067-2013346002

    Surprise surprise it is a suburb that is incredibly popular with Chinese. How on earth anyone can think $4.95 million is remotely close to fair value for a place like that blows me away.

    But these kind of sale prices affect the “value” of the entire suburb and eventually the rest of the city.

    How many people in Australia, earning income here, could ever pay $4.95 million for a home – not even doctors, lawyers or other high income professionals could afford it. Absent a few CEOs and wealthy business owners, forget it.

  9. I have a question here though – I lived in that New York stat area, which is top of the list with 23mil people. That area is MASSIVE, its 170 miles from East Stroudsburg PA to Torrington, CT. It is far far less densely populated that Sydney or Melbourne. Even in relatively populous bits, outside of NYC etc, you are talking half acre or acre blocks.

    There are so many types of living experience you can have across that area, from Manhattan to small cities like White Plains or Stamford, to expensive beachside like Westport, to a few acres in the sticks. You could pay 5M for an apartment in Manhattan, to 300k for a 6 bedder in several acres in CT, PA or NY state.

    I really don’t think you can make these comparisons at all.

    • According to the ABS, Greater Sydney includes places like the Blue Mountains and the Central Coast. Greater Melbourne includes places like Kinglake, Wallan, Macedon Ranges, the Yarra Ranges, Bacchus Marsh, and the Mornington Peninsular.

      So the same issues are in play.

      • OK, that seems fair then. I’d not come across this broader definition of cities in the US before. Bit of a joke if you know these places. If they applied that same logic to the UK, basically the entire South of England would be a single city.

  10. A total population of 24M with a land size of 7,686,850 SQKM has a big Housing affordability problem…it is a disgrace…

  11. Price Income ratios… Australia has one of the highest personal tax rates in the world. Can we start using Price / After tax Income ratios from now on?

  12. I’m surprised no-one has yet mentioned Luci’s recent comments about strengthening renter rights. I’d argue that she is doing her job, to maintain stability, by suggesting policy that maintains the high prices and property investor activity, whilst addressing the issue of stable housing options.

    I might prefer more affordable house prices, and instead she offers improved rental options through stronger tenant rights.

    Regardless what I prefer, it has to be considered that her idea is the best one given all the factors.