Mass immigration is the cause of Australia’s apartment crisis

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The blame shifting over Australia’s apartment crisis is in overdrive, with everything from deregulation to taxation being blamed for the mess.

Kathlyn Loseby – the chief operating officer of Crone Architects and the NSW president Australian Institute of Architects – blames developers prioritising “greed and speed before quality”:

These solutions must address the root cause of the problem, namely a culture and practice that has put time and cost (or greed and speed to put it bluntly) above quality. That equation has seen quality lose out, jeopardising both people’s safety and their economic security. It’s an equation that must now be reversed…

The only way to achieve the level of lasting change required is to embed quality into the construction process from start to finish and at all
points in between…

And quality is what it all comes down to. Because without it the government and industry will never win back the public confidence that has been shaken and cracked just as surely as the physical structures.

Similar sentiments have been expressed by Ian Bailey – professorial fellow at the University of Melbourne Law School – who also blames deregulation:

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The fundamental issue is the extensive construction of multi-storey apartment buildings by some developers who, for the sake of profit, have included seriously inadequate fire safety and water-proofing, among other deficiencies…

The offending developers have been aided in their misconduct by the delusional process of private certification and, more importantly, by the abandonment by state governments of the responsibility to impose upon strata unit developers an obligation to comply with building regulations.

Peter Holding – a former senior policy adviser to Premiers Steve Bracks and John Brumby – blames privatisation:

Responsibility for the cladding scandal goes beyond builders. It includes other building practitioners.

…a 2015 Victorian Auditor General’s Office report found that the role of private building surveyors was undermined by a conflict of interest arising from them typically relying on builders for recurrent work…

Certification of compliance should instead be done by municipal building surveyors. Municipal building surveyors currently spearhead local government’s role in enforcement of building regulations in a municipality.

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As does Genia McCaffery – the former president of Local Government NSW:

[Deregulation] was putting the “fox in charge of the hen house” and would result in poor quality buildings that failed to comply.

Decades later successive state governments have ignored thousands of complaints from the community and numerous private certifiers declaring themselves bankrupt to avoid liability.

The industry is failing the consumer with all the benefits flowing to developers. The only real solution it to put government back in charge of regulation of the building construction process and that can only be done efficiently by a local authority.

Finally, Alan Kohler blames deregulation and Australia’s tax system, specifically negative gearing:

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…construction has become part of the disposable society… Not one of the buildings that have been chucked up in Australia in the past couple of decades will be there in 50 years…

It’s clear that, in general, builders and the surveyors responsible for certifying the buildings are under huge pressure to keep costs down and agree to shoddy materials and corners being cut…

Underlying the crisis are two things: deregulation and Australia’s practice of build-to-sell rather than build-to-rent.

In other countries apartments are built by institutions, usually pension funds and endowments, which then rent them out. They make sure they are well built, because these are long term investors who want the buildings to last a long time.

Australia’s apartment blocks are built by short-term speculators (we call them “developers”) who plan to sell the apartments one at a time to individual investors…

And the reason the rent-to-sell system exists in Australia is tax: negative gearing… the reason so many of Australia’s apartment buildings are falling down, or are covered in cheap flammable cladding, is tax.

All except for Kohler’s negative gearing gripe have a kernel of truth. But missing from the analysis is the fact that Australia’s mass immigration policy has underpinned the dodgy construction.

For around a decade, both Sydney and Melbourne have grown by around 200,000 people (combined) each year. This extreme population growth has required huge volumes of apartments to built very quickly, which necessarily has resulted in corners being cut and build quality being compromised.

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As long as mass immigration is maintained, and Sydney’s and Melbourne’s populations balloon, the building industry will continue trying to pump out low-quality apartments like widgets.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.