For years RBA assistant governor, Luci Ellis, has tried to argue that part of the reason why Australian housing is so expensive is because it is far more urbanised than other comparable economies.
Part of the perception of supply constraints comes from our view of Australia as a big country. Yes, we have a lot of land. What we don’t have much of is land where people actually want to live. In general, desirable land is the land within or adjacent to existing settlements. Australia’s population is heavily urbanised compared with other developed countries, let alone most emerging countries.
It is also quite concentrated in a couple of large cities (Graph 6). So the range of acceptable locations is actually more limited than the map would lead you to believe.
And in last week’s speech, Ellis made a similar argument in trying to explain the gaping dwelling price difference between Australia and the United States:
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What we can do is get some sense of the relativities between countries that you might expect, given those institutional and other differences. For example, we can reasonably expect that countries where much of the population lives in smaller, cheaper cities will have lower national aggregate ratios of housing prices to incomes than other countries. That might partly explain why the price-to-income ratio for the United States is relatively low.
Last year, Gareth Brown at the Bristlemouth Blogshowed comprehensively that that the RBA had juked the stats on urbanisation rates by wrongly comparing the greater metropolitan areas of Australia’s cities against only the central inner city areas of other nations. This is why Australia’s urbanisation rate is around 75% versus just under 30% in the United States (see above chart).
If we take the list of US cities by population from Wikipedia, there’s 297 cities with a population greater than 100,000, and the total comes to 90.5 million, or 28.4% of the total US population. So far, the RBA’s numbers look spot on.
But any demographer worth their salt, or any competent person tasked with putting together a chart on urbanisation, knows that US urban populations are defined very differently than those in Australia…
The most accurate like-with-like comparison is to use the combined statistical area of America’s largest cities, it’s the closest equivalent to how we measure city size in Australia. In that case, 239 million people live within the greater metropolitan area of cities greater than 100,000 people. That comes to 75.0% of the US population, very similar to Australia’s 77% and very different to the less than 30% claimed on the RBA chart. Is America also too urbanised to be susceptible to a housing crash?
And it’s not just the US numbers that are wrong. The chart show France’s population at about 15-16% ‘urban’. But more than 20% of France’s population resides in Greater Paris alone. I make the like-with-like number, for direct comparison with Australia’s, closer to 56%.
Following Ellis’ latest speech, Gareth Brown penned another blog post comprehensively debunking the RBA’s argument:
I thought my debunking last year was comprehensive. Nobody argued the contrary. One of our readers emailed a copy of the blog post to the then RBA Governor, Glenn Stevens, and Head of Financial Stability Department, Luci Ellis. The latter had been a staff member perpetuating the myth in the first place. That reader received a response from an RBA Communications Officer. My post had been forwarded to both Stevens and Ellis…
It’s to be expected that nobody called to discuss it with me, these people are busy. But it’s disappointing to see Luci Ellis back out on the circuit spouting the same rubbish…
The table below lists the 8 largest cities in Australia by greater metro area population. In the next column is the cumulative percentage of Australians living in cities that size or larger. To clarify, 21% of Australians live in Sydney, 41% in Sydney or Melbourne and so on. It’s true that we are quite urbanised. But we’re not alone.
In the next column is the percentage of Americans living in cities that size or larger. This measure is done using combined statistical area. So 37% of Americans live in cities as big or bigger than Sydney, and 51% in cities as big or bigger than Brisbane. You can get data for both Australia and America from Wikipedia.
In contrast with what Ellis is claiming, here are some facts:
29% of Americans live in cities larger than 7 million people, versus 0% in Australia
37% of Americans live in cities as big or bigger than Sydney vs 21% in Australia
51% of the population in both nations live in cities as big or bigger than Brisbane
72% of the population in both nations live in cities as big or bigger than Canberra
76% of Americans live in cities larger than 100,000 people, slightly lower than the 79% in Australia…
It’s time for RBA staff members to stop spreading this nonsense and perhaps book into a Demographics 101 course.
I will simply add that Gareth Brown’s analysis is supported by Gerard Minack, who compiled the below chart showing median house price/median income ratios for Anglo cities:
As you can see, housing in Australia is incredibly expensive even outside the major capitals. In fact, there are no cities with less than 100,000 people where house prices are over 7 times income – aside from Australian cities.
Yet again, the RBA propaganda has been caught red handed juking the housing stats to maintain confidence in Australia’s housing bubble.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
