Below is an extract from an interview with Catherine Cashmore and Dr Cameron Murray on Australia’s housing market.
In this video, I explain why the primary policy focus on the supply-side of Australia’s housing market and hand wringing over housing shortages is misguided.
The true cause of any shortage is the federal government’s extreme immigration policy.
The full one hour interview is available at Fat Tail Investment Research (link here).
Transcript:
When I first did economics back in 1994, Pearl Jam was still rocking the charts and we learned about this thing called supply and demand. You know, basic economics.
The way you read the media and the commentary and everything else out there it seems like there’s only a supply side to the housing market. They never mention the demand side. It doesn’t matter who it is.
It’s all about ‘oh we’ve got to boost supply’. ‘We’re not building enough homes’. And it basically ignores the fact that last decade – the 2010s – we actually had the biggest building boom in the nation’s history. We built more homes than ever.
And yet, we still fell behind in housing supply because we ramped up population growth to levels we’ve never seen before. From 2005 through the federal government’s mass immigration policy.
“So now we’re basically stuck in this situation where we’ve obviously got this rental crisis at the moment. Rents have soared. We’ve got more people living in group housing. We’ve got increasing rates of homelessness. There’s a lot of panic around. So the federal government has now said ‘oh it’s all about supply’.
So, they’ve had this National Cabinet where they’ve basically committed – and I put that in inverted commas – because it’s complete BS, to basically build 1.2 million homes over five years starting 1 July next year.
Now, they’re not really building them. I think Cam’s going to agree with this one. They’re not building them at all. They’ve got this, you know, motherhood statement propaganda to basically say ‘oh we’re gonna relax planning and hope that the private sector builds 1.2 million homes over five years’.
For starters, it’s totally unrealistic because it’s not in developers’ interest to basically flood the market with supply because that reduces their profits and their gains. So for starters. it’s going to fail on that point.
Secondly, in the five years leading up to Covid, that was our biggest building boom ever. We built one million and fifty thousand homes and a lot of them were really crappily built high-rise apartments across Sydney and Melbourne, and also Brisbane.
We saw what happened. We had basically massive amounts of flammable cladding with cracking. We’ve had leaky apartments. We’ve had balcony failures. They’re really poor quality.
And even if we could magically do this 1.2 million homes in five years – the federal government said [they will mostly be] apartments, mostly high density. What do you think that’s going to do the quality? We’re going to basically degrade quality even further
Because if you’ve got to build them quicker than we ever have before, your going to compromise on quality. It’s just the fact of the matter.
I’ll also add that we’ve only ever built more than 220,000 homes once in Australia’s history. And that was in 2017. And under this plan, they want to build 240 000 each year for five years. That’s 660 homes a day.
Now one final point before I kick it over to Cam. Under the federal government’s immigration projections, they’ve projected 1.5 million net overseas migrants over five years, which is the equivalent to an entire Adelaide worth of population.
Australia needs to add 330 homes a day just to accommodate that flow of migrants into Australia. That’s a huge volume of houses you’ve got to build just to basically accommodate the extra people coming in.
So the solution is not about boosting Supply. Australia has one of the highest shares of construction workers in the world – about five percent of Australia’s population works in construction. The OECD average is 3.3%. We also built the fourth most homes relative to the housing stock in the world in 2020, according to the OECD.
So we actually do build a lot of homes. The problem is we run one of the highest immigration policies in the world. And that basically ensures that demand is forever running ahead of supply. And that’s why we’ve got this housing crisis”.
The solution is not to run the biggest immigration program in this nation’s history. It’s actually to bring it down to historical levels, which was under a hundred thousand a year, rather than running it at this year’s forecast four hundred thousand”.
And the long-term [net overseas migration] average under the budget is going to be 260 000 net overseas migration. So effectively, it’s really about demand. It’s not about supply. And yet, everyone tries to claim it’s a supply problem when really it’s a demand problem via fire hosing Australia with just far too many people.
That’s basically the long and short of it.
Below is the video (full hour long interview here).
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