Mass immigration is locking Aussies out of housing

By Leith van Onselen

Dr Bob Birrell and Dr Ernest Healy from The Australian Population Research Institute (APRI) have published a new report examining the deleterious impact of Australia’s mass immigration ‘Big Australia’ policy on housing affordability in Sydney and Melbourne.

Below is the Executive Summary, along with the key tables:

The housing affordability crisis in Sydney and Melbourne is close to the worst in the developed world. As of 2017, the ratio of median house prices to median household income in Sydney was 12.9 and in Melbourne 9.9. Only Vancouver and Hong Kong were as bad or worse on this metric.

The result is an intergenerational divide in which the younger generation have diminishing prospects of attaining the housing their parents’ generation enjoy. Property owners are feasting on extraordinary capital gains at the expense of young people who, in Sydney and Melbourne, will never experience any similar benefits because they cannot get onto even the lowest rung of the property ladder.

Why is the crisis so severe? The answer is no secret. First, successive Australian governments have kept in place significant tax incentives for owner-occupiers to upgrade and investors to purchase existing residential property. Second, the Coalition government has maintained very high migration levels, with around two-thirds of the net intake currently locating in Sydney and Melbourne. Migrants are the main contributors to the growth in both cities’ populations of over 100,000 each year.

The consequences are disturbing. Most young households in Sydney and Melbourne cannot afford to buy a house in established suburban areas. The proportion renting is rising sharply. In Sydney, as homeownership rates fell, the share of households headed by 30-34 year olds who were renting jumped from 48 per cent in 2011 to 53 per cent in 2016 (Table 1). In Melbourne the increase in this share over the same years was from 43 per cent to 48 per cent.

Many young households have been prompted to move to cheaper housing on the remote frontiers of both cities. There, they have to pay high prices for houses on tiny lots (averaging 400 square metres or less).

Both state governments are encouraging this outward movement by providing financial subsidies in the form of cash payments and stamp duty concessions to first home buyers. These incentives are also available to all migrants holding permanent visas, regardless of the migrant’s property ownership record prior to arriving in Australia.

What to do?

In Sydney, the Greater Sydney Commission (GSC) is setting the pace. It is requiring all municipal councils to prepare plans for additional medium-density dwellings. Meanwhile the NSW State government has implemented a new medium-density planning code which will allow developers to put more than two dwellings on each detached housing site that they can procure.

This initiative has received the backing of the Grattan Institute and the Reserve Bank. Both want to see it implemented in Melbourne as well. They recommend that zoning constraints on medium density housing in Sydney and Melbourne be reduced in order to stimulate increased medium density dwelling construction.

The population factor

None of these advocates indicates how large the population factor is in the demand side of the equation. Nor do they explore whether their proposals can work given the scale of demand for dwellings in both cities. They have nothing to say about the immigration component of this demand.

The population factor is a black box. We open this box.

In Sydney, the GSC estimates that an additional 35,000 dwellings are needed each year to cope with projected population growth. In Melbourne the planning authorities are assuming a similar number of dwellings is required. The Australian Population Research Institute’s (TAPRI) projections are a little less for Sydney (around 31,000 extra dwellings needed each year) but the same as those of the planning authorities for Melbourne. TAPRI’s projections also indicate that around 19,000 to 20,000 of this need in both cities will be attributable to net overseas migration. As a result, around 64 per cent of Sydney’s need for addition dwellings each year is due to additional overseas migrants and around 54 per cent of Melbourne’s.

Our projections also reveal that, in each city, around 15,000 more dwellings each year will be occupied by the increasing numbers of older resident households. This is because of the ageing factor as the large baby boomer generation replaces the much smaller cohort born before 1950. By 2016 (Table 5) households with a household head aged 50 or older occupied 56 per cent of the detached housing stock in Sydney and 53 per cent in Melbourne. This share will increase.

It is a major contributor – rarely acknowledged – to the housing affordability crisis in Sydney and Melbourne. It in effect amplifies the demand side of the problem. This is because not only must both cities provide an additional 19,000-20,000 dwellings to meet the needs of the growing migrant population, they must do so in a context where the number of existing detached houses available is shrinking because of the ageing factor.

Will the zoning initiative work?

We do not think it will. It has already failed twice. On the first occasion, in both cities, large tracts of land in the inner city and around activity centres were rezoned for high-rise apartment blocks. Huge numbers have been constructed, yet prices for detached housing continue to rise in both cities. The reason is that most new households (including migrants) want family friendly housing. Apartments are unsuitable. Our analysis of occupants of high-rise apartments (Table 6) shows that barely four per cent of these apartments in inner Sydney and Melbourne are occupied by couples or singles with children.

The second failure concerned zoning changes introduced by the 1990s in both cities. These allowed two dwellings to be built, as of right, on most suburban housing sites. Our analysis shows that despite this zoning initiative, relatively few such dwellings have been constructed.

Why? The answer is site costs – that is the escalating price of detached houses in both cities. Developers cannot put two dwellings on most inner and middle suburban house sites for less than $1 million per dwelling.

The proposals to abolish remaining zoning constraints represent the last throw of dice for supply-side advocates. We argue that they will only have a limited impact, for much the same reason that the first zoning initiative has largely failed. The new initiative will add further pressure to site costs because developers will now have to pay even higher prices for detached houses. This is because of the extra value of the site now that more than two dwellings can be constructed on it.

To the extent that the initiative does work, it will do so by providing even less dwelling and protected external space than dual occupancy units provide. In the process, it will detract even further from the suburban ambience that most detached home owners value.

There are doubts that the state governments will be able to enforce the latest zoning initiatives once existing home owners become aware of the implications. The recent backlash in Sydney supports this expectation.

There is no easy solution to Sydney and Melbourne’s housing affordability crisis. Some relaxation of zoning restraints may help. But only if there is parallel action to remove the tax incentives referred to earlier and to reduce the competition for housing flowing from net overseas migration to both cities.

This is an excellent report that destroys the view that Australia’s housing affordability woes can be fixed by simply boosting supply. The fact of the matter is that Australia is building more dwellings than ever, suggesting a lack of supply is not the primary problem:

Rather, this supply is being overrun by extreme immigration-driven population growth, which is projected to continue indefinitely:

With most of this migrant influx inundating Sydney and Melbourne:

The full APRI report can be downloaded here.

Unconventional Economist

Comments

  1. Yep.

    There is just no way of building enough houses (let alone schools, hospitals, roads, everything) to keep up with the migration torrent. And the migration torrent will not subside on its own, because a tiny room in Australia is a far sight better than some Chinese or Indian or whatever town.

    And so housing will continue to remain unaffordable. It’s a simple calculus.

    If prices fall, it will be when wages fall even further. If prices stagnate, credit will be rationed so FHBs still don’t get a look into the kind of accommodation they need. Or prices will just continue to rise.

  2. SchillersMEMBER

    I agree Peachy, with the caveat that Melb/Syd property prices will have a brief pull back for the next 2-3 years, up to 20% from last year’s peak. They will then resume the rise and rise back to extreme unafordability, baring any sustained black swan economic events. What’s happened to hpuisng in the UK is illustrative as to where we are headed. Smaller and smaller homes on smaller and smaller blocks of land.
    More medium and high density housing in established suburbs. Less public green space per person. Longer and longer commutes as more arterial road networks reach peak saturation. Despite gazillions of tax payer money going to private operators, turning once publicly owned roads into privately tolled ones, the road network will continue to be swamped by increase usage. Similar story with rail and bus. Schools will be overwhelmed by demand (many are already) and hospital waiting times will continue to blow out.

  3. Pauline Hanson

    Well instead of complaining, why don’t you get up and move to a regional city. No jobs you say, well if enough people moved it would turn into a bustling metropolis. Leave the large metropolitan areas to the Indians and Chinese, they have more experience with it than you.

    • Exporting the problems to a regional city and displacing/crowding the locals there is not a solution.

      • reusachtigeMEMBER

        Why not? If you’re better than them so be it. They’ll also need to improve their bogan sloth ways.

    • haha well done for sending up the magic puddin theory of ponzi-nomics. Yeah right, we’ll SPECULATE AND BUILD our way to prosperity,- THAT’S the magical economics behind the FIRE SECTOR’S ponzi-nomics. But we’ve got a ltttle itsy bitsy problem with the “natives” which can simply be solved by pushing them out of the way and out of sight into the regional ghettoes. haha Great scam.

    • Inland cities do not have enough water to support larger populations. Remember that Ballarat, Bendigo and Toowoomba almost ran out of water 10 years ago. Do we really want more large cities along our fragile coast? And even then not all of these cities have enough water (Townsville was on low water supply too).

      • It’s not just natural resources and local infrastructure that will be strained to breaking point. Apart from construction, what’s their wealth derived from? What brings in the dough to pay for the fancy imports? Where are the industries? What industries? Are people going to just live on their own veggie patches or pick fruit earniung sfa in competition with newly arrived third world immigrants being paid slave wages? The whole “go out into the regional cities” sticht is just magical pudding talk. They will quickly turn into under-resourced, under-serviced slums, living hand to mouth existences – out of sight and out of mind.

      • Pauline Hanson

        Solar power has transformed the energy landscape in the last 5 years, it is now a cheaper source of energy than coal and will continue to drive down in price through economies of scale, with much cheaper energy comes much cheaper desalinisation plants and piping of water around this country especially inland. There is enough land and there will be enough water to support a much larger population in Australia in the future. Initial investment will be made by government to get the economy going then it is just a matter of letting the consumption based economy carry those cities through and the private sector will follow along. The pessimist have been crying end of the world since biblical times, yet here we are!

      • hahahahahahahahaha

        Sure, we’ll be living the imported high tech lives in our massively leveraged speculative humpies from wiping the backsides of rich boomers. That’ll fix thing. All solar powered of course. lalalalala

      • Sydney almost ran out as well, that’s why they built the desal plant. The question is will it be big enough come the next drought with sydneys increased population.

      • drsmithyMEMBER

        There is enough land and there will be enough water to support a much larger population in Australia in the future.

        But _why_ ?

  4. correlation is not causation.
    It’s the high house prices that drive immigration via construction boom jobs

    there is a million immigrants in Australia that came only to get a well paid job in construction or related industry and those jobs are well paid because house prices are high (cost of labour became almost an insignificant percentage of the final dwelling price)
    house prices are high because anyone was or still is able to get $1m or $2m dollar loan

    once those jobs disappear hundreds of thousands of immigrants will leave

    • Dream on, Doc.

      Much better deliveroo or Uber driving here than living in a 3rd tier Indian city or South American slum.

    • Peachy is exactly right. A few will leave, but most third worlders will stay. That’s what the experience of the last ten years in Spain has shown, and they make up a enormously disproportionate part of the unemployed over there. But Spain’s population did shrink – hundreds of thousands of young and youngish locals, especially the highly educated, and many are now settling down for good in careers in Germany, France, wherever.

      • The spike in NOM departures reported the other week suggests that either the migrants have already started going home or the young Aussies have already started finding better lives in other countries.
        (of course no reason it can’t be ‘ a little of column A and a little of column B’)

      • +1000 StJ. I’ve been lampooned in the past for pointing out that the housing bust in Spain didn’t cut as deep as some posters like to believe, and the never-ending influx of cheap labor (and welfare recipients), first from South America and now Africa is proof in the pudding that a bust here will not result in turning the demographic clock back 20 years. If anything, government will open the floodgates further as the brain drain of educated local youth sends GDP into the negative.

        The playbook has already been written overseas; those hoping to vulch free-standers in metropolitan Sydney will be waiting forever.

      • To be clear on Spain:
        NOM peaked at around 750k in 2008.
        NOM dropped by around 80% to get down to 140k by 2011 and bottomed at negative 120k in 2013 , a peak to trough drop of 120%

        It’s now stabilised at around 150k – 80% below the peak.

        I’d be happy with that for Australia.

      • There was a huge run up mostly caused by an immigration boom in Spain’s population between 1999 and 2012 when the population increased from 40.4 million to 47.2 million. Prior to the 2000s migrants made up well under a million people. Since then the total population has declined by about 700 000 people. Most who have left are either locals and well off migrants. Interestingly the population is growing again despite the 15% unemployment levels and very high levels of unemployment for the young and dependence on the huge submerged economy. While there are retirees from northern Europe, a lot of the remainder are third worlders and this is causing a lot of ill will.

      • So to be clear again – if Spain repeated here, and our NOM dropped 80%, we’d be looking at 0.8% growth not 1.6% growth, and 30 million people in 2050 rather than more than 40 million – without even taking into account the drop in births caused by the drop in migration.
        This would match the situation in Spain where today’s population is about 46.5 million rather than the 54 million it would have been if population growth had continued on the path it was going up til 2009 (e.g. at almost 2% per year – even higher than Australia!)

        Sounds great – looking forward to it.

  5. reusachtigeMEMBER

    Continually blaming immigrants for their success is extremely racialist. The main reason people are not achieving houses is because they aren’t striving as hard for them as migrants. Buying a house has never been a give-away unless you’re a sick houso. You gotta work for it. Maybe locals should take a good look at themselves and then their immigrant brothers and sisters and learn how to succeed.

  6. “Both state governments are encouraging this outward movement by providing financial subsidies in the form of cash payments and stamp duty concessions to first home buyers. These incentives are also available to all migrants holding permanent visas, regardless of the migrant’s property ownership record prior to arriving in Australia.”

    So, you can be a middle-aged foreign millionaire, rock up to Sydney, wait and get your permanent visa (perhaps by buying a business?), and then buy a nice house without stamp duty and with a first home buyers grant.

    Surely this is ludicrous govt policy?

  7. JunkyardMEMBER

    “The reason is that most new households (including migrants) want family friendly housing. Apartments are unsuitable. Our analysis of occupants of high-rise apartments (Table 6) shows that barely four per cent of these apartments in inner Sydney and Melbourne are occupied by couples or singles with children.”

    Confirms David’s lable of, dogbox in the sky air BnB 24 party towers.

    Very interesting report, thanks for posting.

  8. Pollies are not interested in this, and not surprising coming from largely bunch of lawyers regardless if they are from labor or not. The thing that will eventually break the policy is lack of services such as viable transport, affordable housing, lack of water which is being totally ignored. In Melbourne even in the school holidays the congestion just keeps getting greater. If you have kids then getting a job with or without a uni degree is getting harder. Long term we become a broken down mirror image of the US.

    • SchillersMEMBER

      Quite a lot of it. We still allow foreigners to (1) buy unlimited amounts of new RE with no questions asked as to where/how they got the $ and (2) we still allow these properties to remain empty at virtually no penalty.

      As a result, most the new builds are small one bedroom high rise apartments.

      • Really?
        The relative absence of foreign buyers compared to 12 months ago is one of the most often cited reasons for the accelerating falls in both Sydney and Melbourne. Certainly there are no longer sufficient foreign buyers to ensure auctions clearances are any better than embarrassingly low, which is a stark difference to the beginning of 2017. when locals didn’t have time to stick their hands up at an auction before someone from O/S would make a knock out bid.

  9. Big, congested, overpriced cities. What we see as problems, others may see as solutions. From the viewpoint of last century and beyond, very little of Australia makes sense. We are an unproductive, over indebted ship of fools. Lost sheep. There is a long laundry list of things that don’t make sense – some real and some (like automation) dead ahead.

    Flooding the cities with immigrants and piling up the debt is the only thing that maintains the status quo. This might create problems, but at least they are problems that can be explained in 19th and 20th century thinking. Big fcuked-up cities and financial plunder are the devil we know.

  10. Ronin8317MEMBER

    A big difference between HK and Australia is the public housing system. 29% of HK residents are in public rental housing, while Australia is around 3%.

    • True. But public housing in HK means a cramped apartment. In Australia most of it is detached three bedroom places with a backyard.

  11. Don’t be silly immigrants are not the cause of property price rises, Government says so. The Asians are not buying everything, it just looks that way because we are all racist. Nothing to see here just move along……. look Barnaby Joyce just screwed his coffee assistant and shes pregnant

    • >… look Barnaby Joyce just screwed his coffee assistant and shes pregnant

      Just how he likes his coffee(assistant) – with cream!

      • @Peachy

        Worth reading to be bottom of the comments for this. Thanks.

        Would you like to explain the above Freudian Slip? 😀