AMP chief economist, Shane Oliver, is the latest economist to question National Cabinet’s announcement that it will ‘build’ 1.2 million homes over five years, starting 1 July 2024.
Dr Oliver shows that Australia’s housing shortage has been driven by a sharp increase in immigration-driven population growth from the mid-2000s which, despite the pandemic, has left Australia with a housing shortfall of at least 100,000 dwellings:
With immigration now at record levels, this shortfall will only worsen unless Australia dramatically ramps up its housing production.
Below are key quotes from Dr Oliver’s report:
“Australian governments to target 1.2 million new homes over five years from July 2024 – or 240,000 each year. The deal struck with the states is a step up from the prior target to build 1 million homes over five years – which was nothing more than what had been delivered in the last five years”.
“Underlying demographic demand is currently running around 215,000 dwellings per annum but we already have a shortfall of at least 100,000 dwellings (depending on what is assumed regarding average household size)”.
“So, we need to build more than underlying demand each year to bring down the shortfall. Hence targeting 240,000 pa makes sense”.
“That said, delivering on this will be a challenge as over the last five years we have only managed to supply 1 million new homes, material constraints and skill shortages have arguably increased and commencements have already slumped to around 175,000pa”.
“Focusing the extra construction on presumably lower-cost social and affordable housing would make the task a bit easier though”.
“More should be done to better calibrate immigration to housing supply potential and make it easier to relocate from expensive city housing. But at least it’s a decent move in the right direction”.
I noted similar concerns in Thursday night’s Sky News interview:
“Under this plan, Australia is somehow supposed to build 660 homes per day. That’s 240 000 homes per year. Australia has only ever exceeded 220 000 homes once in 2017”.
“I think this target is highly unrealistic given that we’ve obviously got builders falling over left, right and centre. We’ve got higher structural costs because of the supply constraints. We’ve got higher interest rates. So that’s the first thing that needs to be said”.
“The federal budget predicted that Australia would get 1.5 million net overseas migrants within five years. That’s the equivalent of the population of Adelaide in only five years”.
“Now that requires Australia to add to the housing stock net of demolitions 330 homes per day over that five-year period just to accommodate the extra migrants, let alone Australia’s natural increase”.
“So that there is really the nub of the issue. Everyone keeps banging on about it being a supply issue. The fact of the matter is it’s really a demand issue through extreme levels of immigration that we’ve never seen before”.
In a separate note released last week, Dr Oliver also warned that Australia’s immigration-engineered housing shortage is contributing to Australia’s poor productivity growth:
“Very strong population growth with an inadequate infrastructure and housing supply response has led to urban congestion and poor housing affordability which contribute to poor productivity growth”.
The real solution to Australia’s housing problem is to lower immigration to a level commensurate with the nation’s ability to provide new homes and infrastructure.
