Treasury: Mass immigration wrecked housing affordability

Yesterday, the Australian Treasury’s Macroeconomic Division head Crystal Ossolinski told the parliamentary committee into housing affordability that housing supply had not kept pace with rapid population growth in the early 2000s, which caused house prices to surge:

“We’ve had some periods of strong population growth in Australia, particularly in the early 2000s, where population growth has risen quite rapidly”…

“Supply in the housing market is constrained … it takes a very long time to build dwellings.”

But she said there had been a strong response to supply issues which should start to ease prices in coming years.

“We‘re going to have relatively strong increases in the number of dwellings,” she said.

“We have had over 200,000 (building) approvals over the past year, and that will play out in supply over the next couple of years.”

The reason why Australia’s population growth surged is obvious: the federal government threw open the immigration floodgates:

 

Australia’s net overseas migration (NOM) jumped from an average of 90,500 between 1991 and 2004 to an average of 219,000 between 2005 and 2019 – representing an annual average increase in immigration of 140%.

This immigration boom caused population growth to run way ahead of housing supply for a decade, as illustrated clearly below:

But now that immigration has collapsed thanks to COVID, Australia’s ‘housing shortage’ has miraculously disappeared, as illustrated clearly above.

Given these facts, one has to ask why the Australian Treasury strongly advocates a return to pre-COVID mass immigration?

The Treasury’s Intergenerational Report (IGR) projects that ‘Big Australia’ mass immigration will be promptly rebooted after the pandemic, which will see 235,000 net overseas migrants arrive in Australia every year from 2025:

This turbo-charged immigration intake is projected in the IGR to increase Australia’s population by a whopping 13.1 million people (~50%) over the next 40 years to 38.8 million people – equivalent to adding another Sydney, Melbourne and Brisbane to Australia’s existing population.

Such a population deluge will guarantee that housing demand swamps housing supply, resulting in worse affordability (other things equal).

As illustrated in my submission to this inquiry, “any housing supply problem is first and foremost an excessive immigration problem”.

The first rule in public policy formulation should be not to make a problem worse. The Australian Treasury has clearly broken this rule by continually shilling for mass immigration. It speaks with a forked tongue on the matter and displays a severe case of cognitive dissonance.

Unconventional Economist
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Comments

  1. Of course it must have been the immigration that has jacked up the house prices all over ‘Strya since the start of the pandemic.

    Even in their absence the immigrants are wrecking the affordability.

      • Why is chart 2.4 just flat at 200K immigration. ?
        There will be a proposal to increase of 100k for 2 years to make up for the dip!
        Halving interest rates got prices up through border closure, but need something else after.

        So Now you can borrow a world leading 7 times your income no questions asked. Why not get the banks to move that to 10 times your income interest only. No risk! The principal doesnt matter, it will inflate away. Election winning house price strategy.

    • It is indeed a joy and surprise to LibLab, that they can maintain the world-high house prices, without the world-high migration. In no sense would that justify the cynical Treasury vandalism, of returning to world-high migration.

    • Fine. No TFF. No JerbKeeper. No further radical rate cuts. No further loan payment referrals. No more super access. No more GDPs worth of stim dumped into the economy. Why are prices going up? Gee whiz who knows?!?

      And now lets not do mass migration for a year or two and see what happens….

    • Vladimir Scorpius

      First of all, immigration may have slowed, but it didn’t stop. Second, it is not a one turn, one factor issue.
      And third, it may or may not be ‘splitting hairs’, but migrants didn’t return home as was claimed would be the case by some.

  2. It was/is a perfect storm of (at least) three factors: the financialisation of housing (property as an investment asset rather than a place to live and bring up children), mass immigration pulling forward demand, and easy credit driven by ultra low interest rates (fed market distortion) and lax lending standards (when the music’s playing you gotta dance). And there you have it .. one generation (perhaps two) makes eye popping gains while young Australians are left holding the bag.

  3. It is not just cognitive dissonance, but the more vile tactic of gaslighting. Is she the same Treasury official who said last week that a high immigration rate does not affect wage growth despite a decade of evidence indicating that it does.

  4. Crystal Ossolinski is not the Head of the Macroeconomic Division at Treasury. There is no Division with that name.

    According to the Treasury organisational chart dated August 2021 the head of the Macroeconomic Group is Luke Yeaman, a Deputy Secretary. There is a Macroeconomic Analysis and Policy Division (headed by Mark Cully) and a Macroeconomic Conditions Division – MCD (headed by Michael Kouparitsas). The org chart shows that Crystal is the acting head of the Macroeconomic Conditions Branch which is within MCD. According to her LinkedIn profile Crystal works part time as the Director (ie the Section Head) of the Domestic Demand Unit within MCD – presumably her unit contained in Macroeconomic Conditions Branch.

    https://treasury.gov.au/the-department/about-treasury/our-organisation

    https://www.linkedin.com/in/crystal-ossolinski-06a83462/?originalSubdomain=au

    I doubt that Crystal has had much say in the govt policy formulation, as this is driven higher up and often just comes out of the Treasurer’s office with the Treasury writing up the narrative to suit the political demands. In some departments that I worked draft briefings were sent to the Minister’s Office and they would amend them to ensure that the relevant party line was being followed before the briefing was finally signed off by senior departmental officer. and this may give some future readers of the official govt papers that the views expressed were that of the Department, thereby partly absolving the govt of any future odium for poor decisions.

    Public servants that do not follow the official line do not progress far.

  5. The ABS, like most media in Oz, either misunderstands the NOM data (unlikely), or is wilfully misrepresenting NOM data by not highlighting the change in the expanded UNPD definition in 2006, conflating temporary churnover with permanent migration under the catch all of (undefined) immigration, followed by inflation of headline numbers for media headlines, spruiking property (growth) and comparing Australia with nations using different methodology. Many nations do not measure NOM e.g. in EU due to Schengen Zone, hence, do not include in their population data which is often simply derived from registered residents, so according to statistics 101 no comparisons can be made…..

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