RBA boss: Strong immigration fueled Australia’s property bubble

In Friday’s testimony to the House of Representatives Standing Committee on Economics, Reserve Bank of Australia (RBA) governor, Phil Lowe, explicitly blamed mass immigration for fuelling the strong house price inflation experienced over the past decade:

Chair: Since its peak in 2011, the cash rate has fallen from 4¾ per cent to 1½ per cent… Is the expectation of the RBA that, if we continue to drop interest rates, you’ll see a proportional increase in house prices?

Dr Lowe: It’s certainly possible, because one of the ways that monetary policy works is by pushing up asset prices. That’s how it works, and it’s no surprise to me that equity markets around the world are very high at the moment, at a time when central banks are expected to cut interest rates—and the same mechanism works on all asset prices. I think the housing market is more complicated. I think the piece of work that Peter Tulip did was very good. I don’t agree with all its particular conclusions, but, in the same spirit we talked about before, we encourage our staff to look at things from different perspectives, and we think it’s important they go in the public domain. The paper is right, though, in saying that lower interest rates have pushed up housing prices. I think that’s pretty clear. In my own view, there are other things that are probably more important over the past decade, and they go to population growth and the slow response to that on the supply side. I think we talked about this last time—that population growth picked up in Australia quite a lot and it took almost a decade for the rate of growth of the supply to respond to that.

I’m just raising this in the context of the next phase in the housing market, because what we’re seeing at the moment is quite strong population growth, which I think is good, but the additions to supply of the housing stock are slowing right down. New development is slowing down, and one of the issues we’re going to keep a very close eye on over the next little while is what the supply of housing is doing. If developers cannot get financed, the supply of housing will slow a lot and we will be sowing the seeds for the next upswing. It’s coming from this intersection, again, of strong population growth and the supply side that takes a long time to respond.

There’s no denying that the rapid population growth and densification of Australia’s two major cities – Sydney and Melbourne – helped drive the cost of housing to extreme levels.

In the 14-years to 2018, Sydney and Melbourne added 1,050,000 and 1,300,000 people respectively, of which 470,000 and 590,000 people were added in the five years to 2018 alone:

Reflecting this strong population growth, especially over the most recent five years, both Sydney’s and Melbourne’s dwelling price-to-income ratio surged to an extreme 9.1 and 7.5 respectively as at the end of 2017 – well beyond Australia’s other capital cities where population growth was lower:

Reflecting this cost escalation, home ownership rates in both Sydney and Melbourne have collapsed among under-40 Australians:

Given both Sydney’s and Melbourne’s populations are projected by the ABS to balloon to around 10 million people over the next half century, driven by ongoing mass immigration, the chronic housing affordability problems in both cities will continue.

In turn, both Sydney and Melbourne are facing a future whereby only the wealthiest residents will be able to afford a detached house with a backyard, while the majority of residents will be forced to live in cramped accommodation, an increasing share of whom will also be renting.

Leith van Onselen


  1. Now we just need then to admit high immigration is the cause of overloaded infrastructure, services and depletion of water reserves forcing declination plants to go into over drive for the future

  2. Jumping jack flash

    High immigration was originally used to stop out of control wage inflation back in 06 and 07, lest high interest rates destroy everything.

    However these days it is used to steal wages.

    Note that without cheap and easy credit, which is now required to purchase houses because there is simply no other way, a vendor can ask whatever their greedy heart desires, but if no bank will fork out that much to a rube, they’re going to have to wait until those incredibly rare people come along with the full amount of money already in their bank, and a willingness to hand it all over to the vendor for what they have to offer – a mediocre house.

    Those are rare beasts indeed.
    Immigrants, or not.

    It is all moot however, because the world is quickly changing and agendas are being exposed as quickly as they hide them:

    I read recently that now it seems that the most recent interest rate cuts WERE due to the fact that the US cut theirs’ and without cutting ours we would have a stronger dollar, and that would be bad for some reason.

    Don’t worry, RBA, the US is ramping up the currency wars again, and the humble AUD will soar very soon. We just won’t be able to keep up.

    Not a single mention of creating jobs, and kick-starting wage inflation or general inflation. Just more downgrades to their estimates. Most likely because changes to the cash rate cannot possibly affect jobs and inflation without more debt. And nobody has the capacity for debt because wages aren’t rising – not even wage theft has much of an effect now.

    There’s simply too much debt, you see, and we’re stuck.