The part of Prime Minister Kevin Rudd’s address to the Business Leaders Forum this week on “the Challenge of Housing Affordability” did not mention the word “immigration”. Not once.
It was the unmentionable elephant in the room.
“Many factors have contributed to the deterioration in housing affordability – but fundamentally there are simply not enough houses being built to meet the demand for housing,” Rudd said.
Yes, you can always increase supply to meet demand to reduce prices. But Year 12 economics tells you that you can also reduce demand to cuts prices.
Rudd’s Immigration Minister Chris Evans announced an increase in skilled migration to 108,500 a year. This comes after working holiday visas have risen to 126,000; temporary working visas have risen to 100,000; the family category to 50,000; the refuge intake to 13,000 and New Zealand immigration to 20,000.
Yes, nearly all the temporaries and holidayers leave. Some Australians emigrate. Some migrants leave. But overall, Australia has brought in more than 100,000 people a year for most of the past 20 years, and many more than that on average in the past five years.
Of course, we have a housing affordability crisis. Of course, we have stresses on the environment and infrastructure. Amazingly, though, we still have a skills crisis. Clearly, not even the much lauded skills program is doing its job.
Sure, migration has had many benefits: cultural enrichment, innovation, skills, economies of scale and so on. But there must be a figure when the detriment outweighs the benefit. I daresay that if Australia had a population of one billion every migrant would be a detriment. I dare say that if Australia had a population of one million every migrant would be of benefit. The critical question is at what point does the detriment outweigh the benefit?
Given the affordability crisis, have we reached it
Rudd asked us to “consider these facts.
“In 1996, the average home cost four times the average annual wage. A decade later, the average home cost seven times the average annual wage.”
But what about the crucial fact that in that decade, more than a million migrants came to Australia. All of them sought somewhere to live.
Rudd is not the only one with an elephant in the room. The Housing Industry Association, the Master Builders Association and the Real Estate Industry Association never ever mention immigration in the same breath as housing affordability. They wring their hands and seek government hand-outs or lower tax, but heaven forbid that the immigration goose be prevented from laying more golden eggs for these interests. They line up to line their own pockets.
I’m not against a refugee program, a family-reunion program or even skills program. But I am against the blinkered whingeing over housing affordability.
Sorry, but if you want an immigration program of more than 100,000 a year when all our coastal clinging cities are full, the price of an average house is going to be $500,000 and more next year and more the year after that. Accept it. If you increase demand you increase the price. And there is no surer way of increasing the demand for housing than by increasing the number of people clamouring for it.
Expect housing to soak up even more than the present 32 per cent of income.
Rudd said, “By 2007, completions had fallen to under 150,000 new houses per year while underlying demand for new houses increased to over 180,000. That is a gap of over 30,000.
Australia cannot address housing affordability without building more houses.”
That is only half the story. Again, Year 12 economics says prices will not fall until supply is not merely increased, but outstrips, demand. Just adding a bit to supply will not help. You have to add enough to supply to meet ALL the demand with some left over, before prices will fall.
We have been 30,000 houses a year behind for the past half dozen years so we have nearly 200,000 houses to build before we start on next year’s deficit. Australia has not got the capacity to build 180,000 houses a year plus an extra 200,000 immediately. So if houses are unaffordable now, they will remain so into the indefinite future.
Unless, of course, we reduce demand by reducing population growth. Former Treasurer Peter Costello’s third-baby plan was as silly as his first home-buyers’ grant. Both were bound to make houses less affordable.
This Government’s plans are only marginally better. Most government incentives merely add to the capacity of buyers to pay higher prices in a market that cannot meet demand and therefore drive prices up.
That will be the effect of the tax-break system for first home-buyers.
The Federal Government’s attack on state taxes and planning bottlenecks will help a tad, in the unlikely event the Premiers and Chief Ministers will act. But all past evidence shows they will hypocritically waffle about affordability while forever making houses less affordable with ever higher stamp duties, rates, land tax and development costs and delays.
The Government’s infrastructure fund might help a bit.
But, fundamentally, the problem is demand driven.
If you like whatever benefits there are of high immigration, accept that the cost of this is higher housing prices. Grin and bear it.
In the meantime, discussing housing affordability without mentioning immigration is as dumb as talking about building new schools without talking about children.