The fundamental factor driving Australia’s housing crisis in not an inability to build homes. Rather, it is that Australia runs one of the world’s largest immigration programs, thereby ensuring that housing demand outpaces supply

When I first studied high school economics in 1994, we learned about “supply and demand”. You know, basic economics.

When you read the media and the commentary surrounding the Australian housing market, you would think there’s only a supply side. The demand side rarely gets a mention.

This narrative ignores the fact that last decade – over the 2010s – Australia experienced the largest dwelling construction boom in history. As a nation, we built more homes than ever, as illustrated below:

Indeed, the OECD’s Affordable Housing Database shows that Australia has built significantly more dwellings per capita than most other OECD countries:

Australia ranked fourth in the OECD for housing construction in 2020.

Australia’s dwelling construction rate was also unchanged from 2011, according to the OECD.

Australia also has one of the highest shares of construction workers in the OECD:

Australia is experiencing an unprecedented housing crisis. Rents have soared. Increasing numbers of people are living in group housing. More Australians are being driven into homelessness. There’s a lot of panic around.

In response, national cabinet has committed to building 1.2 million new homes over five years, starting July 1, 2024.

Federal, state and territory governments won’t build these 1.2 million homes. Their plan is to relax planning and zoning rules to allow higher density in the hope that private developers build them.

It is telling that the Albanese Government’s own contribution to the supply target through the Housing Australia Future Fund, assuming it ever passes the Senate, will be just 30,000 homes. That is just 2.5 per cent of the total target: similar to recent construction levels of public housing by state and territory governments:

The national cabinet’s 1.2 million housing target is destined to fail for multiple reasons.

First, it is not in developers’ interest to flood the market with supply because that reduces their profits. Private developers have an incentive to drip feed supply to keep prices high.

Second, national cabinet’s plan is to build 240,000 homes a year, or 660 homes a day. However, Australia has only ever built more than 220,000 homes in a year once in 2017 when it built 223,000.

Australia’s 40-year average home construction rate is only 160,000 – i.e. 80,000 less than national cabinet’s target.

How will Australia build more homes than we ever have before in an environment of widespread builder collapses, shortages in materials and labour, and higher interest rates?

Third, what about the corresponding infrastructure to accommodate these new homes and population? Most roads, schools and hospitals in our major capital cities are already at capacity.

Finally, even if we could magically build these 1.2 million homes, they are likely to be low quality.

The previous decade’s construction boom was associated with widespread defects including cracks, water leaks and balcony problems (e.g. the Opal and Mascot Towers in Sydney).

Building so many apartments as quickly as planned by national cabinet will inevitably compromise on quality leading to the same types of structural issues we witnessed last decade.

The solution to Australia’s housing shortage rests on the demand

The fundamental factor driving Australia’s housing crisis in not an inability to build homes. Rather, it is that Australia runs one of the world’s largest immigration programs, thereby ensuring that housing demand outpaces supply.

In the 20 years to 2002, Australia’s net overseas migration (NOM) averaged 96,000 people a year and population growth averaged 216,000 people a year.

In the 20 years to 2022, Australia’s NOM averaged 190,000 and population growth averaged 328,000 people a year. This period included the negative NOM experienced over the pandemic:

Australia’s population has grown by 7.4 million people (39 per cent) this century, representing the nation’s largest population increase on record.

This strong population growth, combined with falling investment, has driven the shortage of public housing to its current dire levels:

Between 1955 and 1993, Australia built approximately one public home for every 12 to 30 new Australians.

Over the following decades, the ratio of public housing to new Australians fell to a low of one home every 168 new Australians in 2022.

The housing situation will only worsen from here.

The 2023 federal budget projected that Australia’s population would swell by 2.18 million people (equivalent to the population of Perth) over the five years to 2026-27, driven by 1.5 million net overseas migrant arrivals (equivalent to the population of Adelaide).

Last week’s Intergenerational Report (IGR) projected that Australia’s population will swell to 40.5 million by 2062-63, driven by long-term NOM of 235,000 per year.

This means Australia will grow by 14.2 million residents over the next 40 years, which is equivalent to adding a combined Sydney, Melbourne, Brisbane and Adelaide to Australia’s current population of 26.3 million.

How will Australia’s housing supply ever keep pace with demand when the population is projected to grow by 355,000 people a year on average for 40 consecutive years?

Australia has not built enough homes over the past 20 years. Although the rate of dwelling construction surged last decade, this construction boom was insufficient to keep pace with the massive increase in immigration-driven population growth from the mid-2000s:

What makes anybody believe that we will achieve better outcomes over the next 40 years?

Moreover, do Australians want to live in high-rise apartments? Because that will become the norm with a population of 40.5 million, and a Sydney and Melbourne of nine million people each.

The same criticisms can be made about Australia’s infrastructure, which has become increasingly crush-loaded by the 7.4 million population increase this century.

How will Australia catch up on its accumulated shortfall of roads, public transport, hospitals and schools, let alone provide enough infrastructure for another 14.2 million people? It is an impossible task.

It’s the immigration …

Australia’s housing shortage is a direct result of nearly 20 years of excessive immigration, which is projected by the IGR to continue for at least another 40 years.

If the Albanese Government genuinely wanted to end the nation’s housing shortage, it would run an immigration program that was substantially lower than the overall expansion in the housing stock, not the other way around.

It is time to stop scapegoating a ‘lack of supply’ and start acknowledging the immigration elephant behind Australia’s housing shortage.

https://www.news.com.au/finance/economy/australian-economy/housing-market-fix-that-simply-wont-work/news-story/5ec76182fa454a5d608fa70500fa870f

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My other blogs. Main ones below:

http://edwatch.blogspot.com (EDUCATION WATCH)

http://dissectleft.blogspot.com (DISSECTING LEFTISM)

http://antigreen.blogspot.com (GREENIE WATCH)

http://pcwatch.blogspot.com (POLITICAL CORRECTNESS WATCH)

http://snorphty.blogspot.com (TONGUE-TIED)

http://australian-politics.blogspot.com/ (AUSTRALIAN POLITICS)
    
http://awesternheart.blogspot.com.au/ (THE PSYCHOLOGIST)
 
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