RBA: Mass immigration behind Australia’s unaffordable housing

RBA Governor, Phil Lowe, has once again blamed Australia’s mass immigration policy for inflating housing values and making homes unaffordable:

So what does the governor worry about? He worries about opportunity and about inequality… And he worries that high house prices can entrench inequality from one generation to the next…

Hold on. Aren’t you to blame? Wasn’t it the RBA, by keeping interest rates so low for so long, that created the “bubble” in house prices? “It was a contributor,” Lowe concedes, “but not a prime contributor. If you ask any first-year economics student, what’s going to happen to housing prices – we all want to live in fantastic locations by the coast, each person have a large block of land, and under-invest in transport, and allow fast population growth, please explain? I think you’re going to get high housing prices.”

This follows Lowe’s testimony to the House of Representatives Standing Committee on Economics last month:

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… 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.

That said, while acknowledging the problem, Lowe remains wedded to Australia’s world-beating immigration program, which he thinks is “good”.

This makes Lowe’s faux concerns about inequality laughable, given rapid population growth is a key driver of said inequality by inflating housing costs, flattening wages, and enriching the wealthy elite.

Leith van Onselen

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