The Grattan Institute’s immigration blind spot

By Leith van Onselen

The Grattan Institute has lamented the sharp decline in Australia’s home ownership rate among younger cohorts, pinning part of the blame on a chronic housing supply in the major cities. From The ABC:

Australia’s housing boom is no secret, and has been going for 20 years, Mr Coates said. It has been more acute in recent years, with house prices across the country rising 40 per cent in the past five years.

“What these numbers show is that there’s clearly a problem linked to housing affordability. It shows we have a really big problem in ensuring the younger generations can afford to purchase a home,” he said…

Mr Coates said housing construction had not kept up with demand, and there needed to be an increase in medium-density development in cities like Melbourne and Sydney.

“You’ve got a backlog of a decade that you would have to overcome in order to see those prices come down or at least stabilise,” he said.

“We’re not talking about high-rise apartment buildings, we’re talking about two to three to four-storey townhouses.

“People are wanting these kinds of homes that are close to jobs and close to amenities, but it’s the sort of thing the market is not supplying at the moment because it’s difficult to subdivide and build in those inner and middle ring suburbs”…

Mr Coates said governments and policy-makers needed to act now, because turning the tide could take decades.

“It took 20 or 30 years for this problem to develop, and it will take 20 years for the problem to be solved, that’s why we need to start now,” he said.

“Without action there is a greater risk that millennials will miss out on the benefits of home ownership and those benefits are substantial.

Take a look at the below charts, which show the change in Sydney’s and Melbourne’s populations versus the change in the number of dwellings, as reported in the Census:

 

As you can see, the primary reason why “housing construction had not kept up with demand” is because their population growth has ramped-up massively due to mass immigration, not because less dwellings have been built.

So why is Grattan only focusing on the supply-side of the housing market by increasing “medium-density development in cities like Melbourne and Sydney”, rather than the more obvious solution of cutting immigration back to sensible and sustainable levels.

As I have noted many times before, it is the federal government’s mass immigration program that is the primary driver of Australia’s (and by extension Sydney’s and Melbourne’s) strong population growth. The federal government has raised Australia’s permanent migrant intake from around 80,000 at the turn of the century to 200,000 currently:

And the lion’s share of these migrants have flooded Sydney and Melbourne, as confirmed by the Census, creating the population pressures in the first place.

As shown in the next chart, which comes from the Productivity Commission, Australia’s population will reach more than 40 million mid-century under current mass immigration settings, at least 13 million more than would occur under zero net overseas migration (NOM):

That’s a heck of a lot of extra people to build infrastructure and housing for versus a lower or zero NOM policy.

The fact remains that it is a direct policy choice how ‘big’ Australia becomes, not a fait accompli. So why isn’t the Grattan Institute advocating lower immigration, thereby relieving the intense population pressures afflicting Sydney’s and Melbourne’s housing markets?

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Comments

  1. Lucy Turnbull left the Board in November. If she is reflective of the other Board members, then they’ll be all for Swollen Australia.

  2. I would like to see an article on the reasons behind why all these various experts can never mention reducing immigration as a solution. Its somewhat resembling a cult. Is it because in the wake of the White Australia policy, things have changed completely in the opposite way? Is it because the proponents are secret beneficiaries of this policy? Or do they genuinely believe what they say and are misguided? And if misguided why so?

  3. KeenEyeKenMEMBER

    UE, can you please clarify the bar charts. They’re labelled as 2001, 2006 and 2011 Census but there’s no 2016. Are they not yet updated to 2016, or are they changes since that particular Census?

    Regardless, one chart stands out — ‘Melbourne: Dwelling Supply vs Population Change’. This chart doesn’t point to Melbourne having any supply vs demand problems.
    Without confirming the source data myself, this chart shows that *both* Dwellings and Population has increased by a total of 36.3% over the 15 year period. Both almost exactly the same!
    But, there’s an increased prevalence of empty dwellings, right?
    Yes, the percentage of unoccupied dwellings has increased from 7.5% in 2001 to 9.6% in 2016, which equates to about 36,000 additional dwelling left unoccupied over that period (about 6 months of supply, at current completion rates of 16-17,000 per quarter).
    However, we need to take into account that average household size has increased slightly over the past decade. People per occupied house have increased from 2.69 to 2.85 over the past 15 years. That doesn’t sound like much, but equates to almost 95,900 houses.

    If anything, Melbourne has built about 60,000 too many houses over the past 15 years – just as we enter the zenith of a building boom.

    Melbourne has not experienced any shortage of supply — none at all.

    (edit: I guess my point is that Melbourne’s unaffordability has not been driven by lack of supply response to record population growth)

    • KeenEyeKenMEMBER

      In Sydney:
      Between 2001 and 2016.
      Vacancy of Properties has increased from 7.0% to 7.7%, equal to 123,000 dwellings taken off the market.
      People per occupied house has increased from 2.74 to 2.97, leading to almost 134,000 dwelling no longer required.
      That’s just over 10,000 houses of excess supply.

      It’s becoming increasingly clear that supply constraints are not the reason for unaffordability.

      (edit: would love for someone to reply/critique my approach, but I doubt it. People dont often engage/provide feedback when popular narratives are exposed).

      • The growth in vacant dwelling is a problem, still its only 8000 p.a. doesn’t go far when population growing at 400,000 p.a. The people per occupied house growing may be not because they want to but forced to to save money e.g. share housing, granny flats etc. That number is especially significant because the number of single person households has blown out by 20% (I would suggest that is largely down to older people inhabiting a house after a partner has died).

      • KeenEyeKenMEMBER

        Indeed, growth in the rate of vacant dwellings is a problem – particularly in workforce/metropolitan areas, less so in regional holiday hot spots. I suspect your point about increased household size is spot on. Not a choice, but rather driven by necessity. Regardless of whether people want bigger households or not, it has taken substantial pressure off demand for new housing (wanting a house vs actually demanding a house are very different things. I want a brand new Ferrari, but I’m not adding to demand for one).

      • “It’s becoming increasingly clear that supply constraints are not the reason for unaffordability.”

        They are part of the problem (more so land supply constraints than the number of dwellings). But excessive demand is the larger driver in both cities.

      • KeenEyeKenMEMBER

        ‘more so land supply constraints’
        Yes. There’s little reason why Melbourne suburbs like Pakenham should exist, considering the ample amount of land 20-30 minutes closer to the CBD. Release the higher value land once the state has already built the infrastruture for your customers even further out. It’s basically arbitrage.

        Our failures are made clear by the returns made on outer-urban land banking. Case in point: 974 Black Forest Rd, Wyndham Vale. Purchased in the 1970s (not sure for how much, but I’d be staggered if it were over $100k), sold for $95 million. That’s over 20% per annum, every year, for decades. Sure, this family were not land bankers, but it proves a point about the magnitude of wealth transfers from first home buyers to owners of land.

    • Sorry Ken, the date axis was mis-labelled. It’s fixed now. The data is exactly the same.

      Also, the average number of people per dwelling has increased in both Sydney and Melbourne (despite and ageing population), which signals tightening supply.

      • KeenEyeKenMEMBER

        Yeah, cheers. I figured as much (thanks for replying too).

        As Dan mentioned, there’s a push towards single occupancy housing (ageing plus empty nesters?), suggesting that increases in people per household are entirely bourn by younger generations. I dont interpret this as a supply issue, but rather an unaffordability/price issue.
        Personally, I would like to see a more metropolitan development (and often crack it my local nimby’s that are more than happy to see younger generations wallow).
        If my interpretation is correct, the metropolitan housing market is far more precarious than people give it credit for. Building headlong into an already oversupplied market isn’t clever – particularly when it’s driven by debt and hubris.
        I do not support increasing supply because I think it’s is an issue, but rather that when people realise that supply is not a problem, the oversupplied market will foster some hefty intergenerational transfer of wealth.

      • KeenEyeKenMEMBER

        Probably not. They’re more likely to be 40sqm dog boxes now than ever before.
        Confounding, isnt it? There doesnt seem to be an undersupply of dwellings, particularly those with low construction costs, yet we have affordability problem.

        I’d be staggered if high density apartments cost more than $100k each to build (including land/labour/capital costs), yet still cost multiples of that. There are some hectic profits being made out there

  4. Indeed. I sent an email to Brendan Coates @ Grattan Institute a couple of weeks ago after yet another story or report on housing which failed to mention population growth and immigration. I did find one report on their website which does mention it as a factor, and they clearly know and realise it, but in all the media and personal appearances they leave it out. Daley (who for a while was a bit like Eddie Everywhere) in particular.

  5. Leith was your last sentence rhetorical “So why isn’t the Grattan Institute advocating lower immigration…”?

    I heard long ago that the Grattan Institute was deliberately set up by former Premier Steve Bracks and Federal Treasuer Peter Costello to advocate for the Victorian Government’s Department of Premier and Cabinet. There is nothing in Wikipedia to contradict this: https://en.wikipedia.org/wiki/Grattan_Institute

    And those two gentlemen are wholly in favour of high immigration; so while Grattan claims to be independent I see them as fully in with Growth Lobby. Always lot’s of ideas on how to fix the symptoms, but they never point to the ultimate cause. .