Australia’s housing crisis is the result of failing to build enough well-located homes, not excessive migration. Cutting migration instead risks weakening the economy while leaving the real problem untouched.
Immigration has become a hot political topic in the last year or so. Certainly, the rise in support for One Nation seems to have been driven by those who are increasingly concerned about immigration. Although whether One Nation’s support has risen because of greater concern about migration, or whether One Nation has created that greater concern is uncertain.
In the last couple of months, all three of the major political party groupings have released new migration policies – first One Nation, then Labor and most recently the Liberal-National Party Coalition.
Interestingly, the Coalition has tied its future immigration targets to the availability of housing. Presumably that is because the Coalition wants us to believe that the ‘housing crisis’ has been caused by an excessive migrant intake. But no evidence has been provided in support of that assumption, and, as will be shown below, it is not supported by the available facts.
Australia’s post-war migrant policy was started by the Chifley Labor government soon after the end of the Second World War. Substantial numbers of immigrants continued to enter Australia during the 1950s and 1960s during the Menzies Coalition governments. Indeed, under Menzies, the Coalition was if anything more pro-migration than Labor, with Menzies proclaiming “populate or perish”.
Population growth rates in the 1950s and 1960s were close to double those of today. Higher rates of migration underpinned that growth (see Table 1).
The Menzies Coalition government pursued migration because they believed it would strengthen both the Australian economy and society. Migrant numbers were not tied to housing availability; the government thought the housing numbers should readily adjust to population numbers, not the reverse. That adjustment is largely what happened and there was much less pressure on dwelling prices than today. In the early 1960s the typical house price was about three times the typical male earnings – way below the ratio of more than eight times the joint incomes of husband and wife today.
Moving to more recent times. The 2021 Intergenerational Report (IGR) was based on the Morrison government’s policy that the long-run rate of net overseas migration would be an average of 235,000 people a year, slightly higher than the Albanese government’s present long-run target for immigration.
So, the present Coalition’s immigration policy, based on a substantially reduced target, is a contradiction of their traditional policy stance.
Furthermore, Australia’s birth rates have fallen and the latest IGR projects that Australia’s population growth will slow from an average of 1.4 per cent a year over the past 40 years to only 0.9 per cent a year over the next 40 years. Without migration we could expect our population growth to be much less again, and to start falling from around the 2060s. In addition, because our population is ageing rapidly, without reasonably high rates of migration our economy will suffer.
In short, it makes no sense to tie Australia’s migration target to an assumed low rate of dwelling supply. Instead, we should continue to follow the traditional practice of determining our migration target based on an assessment of our economic and social needs. Governments should then be able to ensure an adequate supply of dwellings to accommodate that target population.
Furthermore, there is no evidence that the faster rate of increase in dwelling prices over the last 20 years is due to an increase in population growth because of excessive migration (see my article on P&I, Want affordable housing? Build up, not out, 11 October). Instead, the rise in dwelling prices is due to a shortage of dwelling supply, relative to the rate of population demand, even though that population is now growing more slowly than in the past.
We need to build more dwellings where people want to live.
I recall that back in the 1950s, when migration and population growth rates were much higher than today, new dwellings in Melbourne were being constructed in suburbs that were only 12 kilometres from the centre of the city and were well connected by train. In those days, it was possible to build on vacant urban land and meet the desires of the new customers. That is the obvious reason why dwelling prices were only three times the average income, compared to 8.7 times today.
Now the value of that land is much, much higher. But if we want to maintain a reasonable rate of population growth, based on a significant migrant contribution, we need to increase urban density and build more dwellings reasonably close to people’s work, friends and family, and sources of entertainment and care. By building multiple dwellings on the same block of land, the cost of the land per dwelling will be reduced and the dwellings will be affordable.
In other words, we need to increase the population density of existing inner and middle suburbs of our major cities. Understandably, the existing residents of these suburbs oppose that, as they are very happy with the very rapid rise in their property values and wish to retain their present urban environment.
No wonder, therefore, that Taylor does not want to buy a fight with these wealthy people, who are usually Liberal supporters. Instead, he would prefer to sacrifice the economic and social prospects of the country – and his party’s traditions – to keep a wealthy minority happy.
But the economic and social progress of Australia depends on increasing urban density by building upwards and no longer outwards. If we do that we can readily accommodate the necessary number of migrants to ensure our future.
Michael Keating is a former Secretary of the Departments of Prime Minister and Cabinet, Finance and Employment, and Industrial Relations. He is presently a visiting fellow at the Australian National University.