Shane Oliver: Mass immigration destroys housing affordability

Shane Oliver – AMP Head of Investment Strategy and Economics and Chief Economist – has published a detailed report on Australia’s property market, which argued that the big ramp-up in population growth (immigration) from the mid-2000s has contributed greatly to Australia’s housing affordability problems:

So why is housing so expensive?

There are two main drivers of the surge in Australian home prices relative to incomes over the last two decades. First, the shift from high to low interest rates has boosted borrowing ability and hence buying power. Second, there has been an inadequate supply response to demand. Starting in the mid-2000’s annual population growth surged by around 150,000 people per annum and this was not matched by a commensurate increase in the supply of dwellings resulting in a chronic shortage (see the green line in the next chart). The supply short fall relative to population driven underlying demand is likely the major factor in explaining why Australian housing is expensive compared to many other countries that have low or even lower interest rates. And the concentration of Australians in just a handful of coastal cities has not helped either.

A range of other factors have played a role including negative gearing and the capital gains tax discount for investors, foreign buying and SMSF buying, but they have been relatively minor compared to the chronic undersupply. And investor and foreign demand have not been drivers of the latest surge.

So what can be done?…

More fundamental policies are needed to address poor housing affordability. Ideally these should involve a multi-year plan involving state and federal governments. My shopping list on this front include:

  • Measures to boost new supply – relaxing land use rules, releasing land faster and speeding up approval processes.
  • Matching the level of immigration in a post pandemic world to the ability of the property market to supply housing.
  • Encouraging greater decentralisation to regional Australia – the work from home phenomenon shows this is possible but it should be helped along with appropriate infrastructure and of course measures to boost regional housing supply.
  • Tax reform including replacing stamp duty with land tax (to make it easier for empty nesters to downsize) and reducing the capital gains tax discount (to remove a distortion in favour of speculation).

As I illustrated in my submission to the parliamentary inquiry into Housing Affordability and Supply, “any housing supply problem is first and foremost an excessive immigration problem”.

The latest Intergenerational Report (IGR) projects that net overseas migration (NOM) will ramp up to 235,000 people a year for decades to come:

This extreme immigration is projected in the IGR to increase Australia’s population by 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.

Australia's projected population growth

Such a population deluge will guarantee that housing demand swamps housing supply, resulting in worse affordability. It will also consign future Australians to live in high-rise shoe boxes:

Sydney dwelling composition

The single best thing the federal government can do to ‘solve’ Australia’s housing woes is to ensure that immigration does not return to its manic pre-COVID level, nor is raised to the insane 235,000 annual NOM projected by the IGR.

The first goal of public policy should be to protect the welfare of existing residents and not make a problem worse. ‘Big Australia’ immigration violates this principle.

Unconventional Economist
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  1. 25-30 years ago, when our population was already 17 million, government and science seriously considered that the driest continent was overwhelming its carrying capacity. All buried, in favour of pleasurable mutual posturing about UN net zero, which has become the economic elite’s latest and cutest proxy for endless growth under business nearly-as-usual.

    Hence, there’s net-zero chance the powers-that-be will let the crazy mass-migration reboot anywhere near 2022 election. Instead, SMH publishes fake distress from toddler MP Jason Falinski, over our world-class housing un-affordability.

    • Exactly, and if Labor get in, expect them to turbo charge immigration like Biden, Trudeau and Ardern have done.

  2. Mass Immigration has destroyed the country.

    When you’ve got houses in industrial neighbouring areas in Brisbane going for +1 million, not good.

    Legacy Australian s will be like Londons cockneys. Looked down upon, seen as obstacle to progress, and a novelty.

  3. Camden HavenMEMBER

    There is only one solution, leave.
    I could feel the walls closing in as Melbourne out grew itself in 2000 I left, very good move. Recently NSW mid North coast has been flooded with oldies with windfall millions from western Sydney filling every vacant nook ruining the character and livability, I’m leaving 😁 and meeting many who know someone who is or has left and understand fully our reasons

  4. Compared to the rubbish Shane Oliver has spewed over the years his latest article is EXTREMELY good.

    The problem with Australian housing is simple. There is a chronic undersupply of decent housing compared to the rate of immigration. This is caused by either too much immigration or too little extra housing, depending on your opinion.

    However what is not opinion is that the extra housing is too low compared to the immigration rate. There is a severe physical shortage of decent housing.

    This severe physical shortage will manifest itself in many ways. Financially in the housing markets it manifests in prices to buy and prices to rent that many people cannot afford. The shortage is the root cause.

    The suggestions from Shane Oliver are actually very good. Of course he is not allowed to suggest lower immigration. This is currently verboten. But Shane very cleverly works around this ban by suggesting “Matching the level of immigration in a post pandemic world to the ability of the property market to supply housing”.

    • IMHO One additional point that’s worth mentioning is that this mismatch (supply vs demand) is intentional, there’s clearly nothing accidental about the mismatch. It is the very process of interfering with the free market (through land restrictions and special allowances) that politicians and land-bankers create shortages. For Politicians chronic shortages of anything essential creates the opportunity for both corruption and political interference in a decision process where their input is otherwise worthless.
      I know it’s impossible for most Aussies to imagine a state/city where an individual has the right to build as many houses as they desire on available land (subject naturally to compliance with local building codes). Politicians create no advantage in such a community. They’re not actual builder, they’re help in modifying zoning regulations is simply unneeded, basically they’re not part of the construction process. They neither help nor do they hinder, they’re simply not involved in the process of transforming farm land into residential housing complexes.
      Compare such a state to NSW where the most powerful (and often the most corrupt politicians) are cabinet ministers with oversight for some aspect of land regulation.
      The land bankers and developers understand this situation very well. The Politicians are fully aware of the advantage they’re gifted through land regulation and the process of drip feeding the market. Political interference is supported at every level of government whether it be through “first home buyer grants” (aka boomer seller bonuses) or ZIRP interest rates or any of the hundreds of other forms of market interference which help shape our housing market.
      It’s pointless to focus on any one driver because it is abundantly clear that the game is rigged regardless of the particular “cheat” which was used to shape the market at this point in time.
      The complete deregulation of residential land supply would be the single best law our politicians could enact but for that exact reason it is also the least likely. TIA (This is Australia)

      • What you say is correct except for the use of that ridiculous term “free market”.

        One of the drawbacks of using competitive markets is that any area where a shortage arises for any reason, the entire benefits of the nearly competitive market structure accrue to the “owner” of the scarce resource. Obviously canny elites are aware of this feature and try to take advantage of it wherever they can.

        In Australia the elite have successfully created a racket in land zoning from around 1975-present. Who is the richest person in Australia and how did he make his money?

  5. The real issue here is a land bubble. As far as I’m aware the cost of building a house hasn’t increased that much in the last 15-20 years. So while politicians and property industry insiders cry fake crocodile tears over lack of supply, they don’t advocate tax policies such as land tax, that would force land bankers to release land into the market more quickly. Therefore you know they actually don’t want to increase supply and by not acknowledging the demand side of the market are phoneys.

  6. What does Australia look like without easy GDP growth from excessive immigration? Economically – pretty ugly. Same management mentality as unsophisticated offshoring within corporate spheres of Australia. As follows: looks better on paper, gets you short term promotion (move on to another company quick!), screw over the incumbent employees so all the good ones leave, actually hollow out your capability and create path dependency so you can never go back without massive pain which no future manager ever wants on their record so no one will do it.

    • Yeah, every Aussie knows that whatever you do, don’t open that box.
      If that stink ever gets out of the box it will overwhelm your senses and most probably incapacitate you.
      The very idea that Australian industry could be globally competitive, with just the currently available workforce, is economic heresy. It’s an experiment that will never be tried because the stink from opening that box would likely kill us one and all.

      • My own view has changed over time but it seems to me now that too many very average Aussies get paid too much and mid-high Aussie don’t get paid high enough? Unlike the US, we have a solid safety net so we should arguably be pushing the envelope on wage deregulation to give more incentive to work. However, sadly I think the Aussie managerial class is so hopeless and corrupt, and our markets so noncompetitive, that they could never be trusted to reward based on merit. Likely under these conditions, mates would get pay rises and everyone else would cop it in the neck.

        • Yep this is precisely why the two measurements of Australian Economic success GDP vs Complexity analysis, diverge.
          In most other advanced economies the two measure converge over a long enough time scale, but in Australia they are diverging (with the rate of divergence increasing) .
          Like what’s up with that? what is this telling us? one thing is clear, it is definitely a story that we don’t want to hear.
          It seems like Australia will continue down this path, with every Aussie knowing that whatever you do don’t open that box, don’t even go anywhere near that box.
          Personally I don’t know if this is good or bad, I spent most of my life working in unprotected industries. One lesson I learned is that whenever you let your guard down someone somewhere will step up and kick you squarely in the happy sac.

  7. Those who say there is one thing — the one thing — that has destroyed housing affordability in Australia are liars. And those who believe that as true are useful idiots.

    I can’t believe I am saying this, but MB is traveling fast into the second category. There are some real valid reasons to drastically cut back on immigration (which should be cut back, no doubt), but the last 18 months experience tells that immigration is not the primary cause destroying housing affordability. I cannot quite remember when MB last trained their sights on the RBA (without mentioning MP of course, because we all know it is LOL). There are probably 10 articles on immigration and housing vs 1 article on everything else.

    • the last 18 months experience tells that immigration is not the primary cause destroying housing affordability

      You are confused by short-term and recent price movements.

      destroying housing affordability

      Housing affordability has already been destroyed. It was destroyed decades ago. We don’t have enough decent housing to go around. The price movements of the last 18 months have changed nothing on the physical equation.

      • @TheClaw We started the pandemic in NSW with a shortage of 100,000 homes thanks to mass immigration, according to the NSW Productivity Commission, hence why you can’t look at the last 18 months in isolation. My rent has gone down substantially since the border was closed thanks to so many international students not being able to get back into the country. Immigration truly is an everything issue. Keep up the great work Leith!

    • “Those who say there is one thing — the one thing — that has destroyed housing affordability in Australia are liars. And those who believe that as true are useful idiots… the last 18 months experience tells that immigration is not the primary cause destroying housing affordability”.

      Mate, we have never denied that cheap credit has pushed up prices. That is self evident and an international phenomenon. Cheap credit overwhelms everything with respect to prices. No shit.

      I am merely pointing out the idiocy of the Government’s supply-side argument while juicing immigration, which is contradictory and complete and utter bullshit. I am writing about it so frequently because it is front and centre in the news. Shit, there’s an inquiry on ‘housing supply’ taking place right now. The MSM is literally flooded with the bullshit.

      Interest rates are set independently by the RBA, whereas the federal government controls immigration and tax settings. It has done everything to make the housing situation worse.

      What don’t you understand? What do you seriously expect me to do?

      • Point of order there UE, there’s nothing independent about the RBA.

        Nice work Coolnick – 18 months of zero immigration yet skyrocketing prices and in 2018, rationing credit/higher standards in the midst of eyewatering immigration, yet prices fell (15%??). QED.

        There’s better bang for the buck publicly bashing the RBA/APRA and the muppet politicians that direct them because there’s your problem.

        • “There’s better bang for the back publicly bashing the RBA/APRA and the muppet politicians that direct them because there’s your problem.”.

          Nope. Mass immigration drives way more problems than simply inflating property prices. It exacerbates every problem that Australia is experiencing – housing (prices and quality), infrastructure, environmental, livability, water security, hospital system, etc. It is the “everything issue”.

          Bashing the RBA/APRA on interest rates is futile. It won’t achieve anything. We instead take aim at macroprudential and lending standards.

          Ultimately, policy rests with the government.

          • That’s it.
            The root cause of so many problems over the past 20 years is the treacherous mass immigration program.
            The immigration intake should be 50,000 NOM a year maximum, this is all we need to maintain the present population size.
            Instead we are foisted with 15 years of an overwhelmingly third world intake averaging 218,000 NOM a year… the ruination of Australia.
            The problem is the size and composition of the program.

          • I no longer even refer to it as the immigration program since it is a cryptonite topic i.e. immediately branded a racialist. I now call it a labour importation program, which is what it ultimately is. It seems to resonate better with the woke “battlers” who otherwise don’t seem to realise they are the victims of it all.

          • Even StevenMEMBER

            Claw and UE are right. I have been following this for 20 years and there is no other explanation. We have a physical shortage of property. Housing construction has failed to keep up with the growing population (=immigration). Yes, ultra low interest rates and credit growth absolutely lead to rising prices, but the shortage would exist regardless.

            If it was truly just an easy credit phenomenon, please explain to me why rents are so high – they are NOT cheap.

            Only government policy can now address this:
            – Facilitate a huge amount of housing construction (mid-rise, high-rise) and stomp HARD on any NIMBY that dares stick its head above the parapet.
            – Restrict immigration until the above has well and truly take effect. Could be many years.

            Credit to UE for continuing to beat the drums on this.

          • It’s important to note it’s not just the sheer number of dwellings, as well, but their type. Tens of thousands of apartments don’t sate the need for houses with backyards.

    • If one goes back to early 2010s MB (or the individual bloggers before that) there were numerous articles about land zoning and other supply-constraining issues.

    • Low rates are just your own personal bugbear. No debt? Bit of cash in the bank? So now you’re fixated on low rates.

      As for migration, or lets call it “a constant flood of competing demand”, its a bit hard to not blame migration when you are in a bidding war with several groups of and are outbid by people who are obviously recent migrants (english very much second language for eg). Its a bit hard to blame rates when this is ones lived experience. I wasnt outbid by low rates it was all those migrants at the auction who kept putting their hands up!!

      Wait for all the stim to run out. Without migration prices will fall. It’s the horrible popping of the ponzi housing/land price bubble and housing construction bubble that will really ream the market. I didnt make this problem.

    • Agree, nothing on employees’ conditions, environment, carbon emissions, incompetence of the LNP, mollycoddled corporate sector and rampant radical right libertarian socio-economic ideology, via Koch linked think tanks, dictating LNP policy and joined at the hip with Anglo exceptionalism and eugenics; hence the obsession with ‘immigration’ and ‘population growth’ that has not been apparent (on past sub-optimal data) for 18 months…… but a good deflection letting all the ‘usual suspects’ off the hook.

  8. There is limited agreement nationally around the plans for Australia’s cities and regional centres. Without addressing a variety of factors its very difficult to pinpoint a defining topic which frames affordability. Economists love breaking things down into simplistic static chunks, but in reality it is never that easy.

    Lets start with a simple notion around the purpose of our cities and regional centres. Historically they existed due to early settler activity and grew through port, rail and agriculture access. The world is different now, many agriculture hubs are dying due to automation and being replaced by a services/information based economy. Rather than housing people, these regional hubs now house giant machines and a small services sector to run said equipment. Cities dominate now but as we move well into the internet age, is it a requirement to live where the information work exists? If anything, CV-19 has shown this not to be true and what we have seen in the last 18 months is a mad scramble by those with money to move into lifestyle locations and work remotely, permanently. These small regional centers were never designed to accommodate this influx of people and unless everyone goes off-grid (water, sewerage and power) then accommodating mass growth will always be difficult.

    My attempt to frame any topic on housing affordability would first need clarity on natural capacity of a location to support a population, the industries which will employ people and the connectivity to the rest of the country and world. The historic early settler/agriculture lens doesn’t apply anymore and perhaps we need to define these topics 1st before we set down the path of fixing a problem we dont fully understand.

    • These small regional centers were never designed to accommodate this influx of people and unless everyone goes off-grid (water, sewerage and power) then accommodating mass growth will always be difficult.
      What’s interesting is that exactly this sort of small town autonomy (own power system, own sewerage system, own water system) is now possible. And not simply possible but maybe even desirable.
      However, this is where reality intervenes to ensure that available technology is not permitted to address the problem space.
      Take the whole Northern Rivers district where extensive development of water storage (dams) and sewerage treatment plants has taken place over the last couple of decades. The local councils, in this region, are all in hock up to their eyeballs and do not look kindly on any building application which bypasses their electricity/water/sewerage systems. For the most part you can install your own water/sewerage systems with the one provision that you also pay the local council water/sewerage fees. So much for distributed technology rescuing us from centralized stupidity.

      • Agree – its puts a lot more responsibility on the individual to manage their own infrastructure. I am on 23 acres in the outskirts of Melbourne. The previous owners had let plumbing, tanks and septic degrade to a point of being risky to health. Complete overhaul of all systems and an intent to get 32kh/w of solar with attached 60kw/h of batteries will see us energy independent for multiple buildings.

        Many people who have not lived rural previously are not equipped on the maintenance side to keep these systems running properly. Those used to “everything on demand” are better suited to the plug and play lifestyle LGA infrastructure provides. It sounds like your area, like mine is full of these sorts of plug and play folks.

        • Not sure if you mean 32kW solar PV array or 32kwh average output (so probably 8kW array)
          If you install 32KW solar array then you definitely need to figure out what you’re going to do with the excess power you’ll generate 90% of the time.
          A 32kW array will generate 6 times this much power on a good day (call it 180kwh) that’s about 10 times the power that an average 4 bedroom house consumes. That means that on a good day 90% of your power is simply wasted unless you decide to use it in a productive manner.
          This is where it gets interesting, what useful things can you do on an intermittent (as available basis) to use excess power.
          High on my list would be water purification (filtering, RO, desalination whatever to turn available water into drinking water or water suitable for agriculture)
          Second on the list would be sewerage treatment (lots of choices for short term store / process when you can systems)
          Third on the list would making my own building materials. For me that means rammed earth blocks.
          Fourth on my list would be something like a Hydrogen storage system (Metal hydrids would be my choice) but this technology is still way to new for any average joe to think about.
          People are only beginning to wrap their heads around the idea that electricity (from your own PV array) is free. You need to figure out what you’ll do with it. If you can’t figure out how to use it then this power will just be wasted.

          • 32kw/h (2.5hrs per day) array powering 4 buildings and a 60kw/h battery pack (B&B in renovation phase). Think 72kw per day in summer with 5 aircons, cooktops, 4 water heaters etc. 3 phase was quoted at $300K due to distance. Solar and batteries much cheaper. Having to build the shed to host the panels. Want my house to make me money beyond capital appreciation and guest accommodation is where it is at.

    • Yep, definitely value in that. Unfortunately most cars dont allow feed in to your local power as it degrades the batteries due to cycles so you cannot use it as a store of house energy.

    • You can’t really generate enough excess solar to do that. Better off charging at night at off peak rates and if you do have excess solar, save that in a battery and use it during peak hours between 2 and 8.

  9. Oliver makes the same mistake all supposedly data literate economists, media, inc. MB, make and even the ABS presents falsely. Ignores the expansion of the NOM in 2006 to the 12/16+ rule sweeping up more ‘temporary churn over’ especially international students, conflating all border movements, spiking headline population, but falsely described or suggested to be (undefined/permanent) ‘immigrants’; very very misleading….

    Meanwhile, one assume MB is not concerned by the following ‘immigrants’ via Guardian article:

    ‘Free flights and $1,000 vouchers: Australian hospitality sector lures UK workers. As the industry prepares to ramp up again amid staff shortages, one company is offering big incentives to British workers….. The hospitality industry in Australia is suffering widespread staff shortages, prompted in part by the closure of international borders and the exit of thousands of international students and working holiday visa holders who would normally comprise a significant proportion of the workforce.’

    • Even StevenMEMBER

      One does not understand what you are on about. Would you like to have another go at explaining?

      • What don’t you understand a clear question would help? Or, is it like a former MB subscriber one knows, who also claimed not to understand NOM data nor notice constant anti-immigration agitprop; then again he (although an immigrant/British) did not like ‘brown people’ 🙂