Addressing Australia’s Housing Shortage Through Immigration Policy Adjustments

⚡️ Highlights:

1. Australia’s housing shortage is directly linked to high levels of net overseas migration. The demand for housing has outpaced the supply, causing prices to increase.

2. The surge in immigration since the mid-2000s has exacerbated the housing shortage, as housing supply has not kept up with population growth.

3. The unit building boom and the decline in population growth during the pandemic temporarily relieved the housing shortage, but the rebound in immigration has brought it back.

4. The housing shortfall is confirmed by record low rental vacancy rates, indicating a high demand for housing.

5. To solve the housing shortage, immigration levels need to be lowered to a level that aligns with the housing market’s ability to supply new homes. The suggested range is between 180,000 to 260,000 people per year, depending on the housing industry’s capacity. Historical post-war average immigration levels of around 100,000 per year should also be considered.

Executive Summary

In a recent discourse at the AFR Housing Summit, Shane Oliver, Chief Economist at AMP, posited that the solution to Australia’s housing shortage lies in aligning net overseas migration rates with the nation’s housing supply capabilities. Oliver’s research note elucidates that elevated levels of net overseas migration are exacerbating Australia’s housing scarcity and advocates for a recalibration of immigration levels to ameliorate this issue.

Key Findings

  • Australia is projected to experience a net overseas migration of 500,000 individuals in the fiscal year 2022-23, exceeding the May federal budget forecast by 100,000.
  • A fundamental imbalance exists between housing supply and demand, exacerbated by high immigration levels and concentrated population growth in select coastal cities.
  • The housing market faces a cumulative undersupply gap, which is expected to reach approximately 165,000 dwellings by mid-next year, not accounting for pandemic-induced changes in household size.

Detailed Analysis

  1. Demand-Supply Imbalance: Oliver contends that the incongruity between housing demand and supply is principally attributable to immigration. Rapid population growth since the mid-2000s has not been met with a corresponding increase in housing completions, leading to a chronic undersupply.
  2. Population Concentration: The issue is further complicated by the concentration of population growth in a few coastal cities, which has strained local housing markets and contributed to supply inadequacies.
  3. Economic Indicators: Oliver emphasizes that per capita GDP, a critical metric for living standards, is declining. The surge in immigration is aggravating the housing shortage and negatively impacting living standards.
  4. Policy Implications: Oliver concludes that immigration levels must be tailored to match the housing industry’s supply capabilities. He estimates that if the home-building supply capacity is 200,000 dwellings per year, immigration levels should be reduced to 260,000 from the current 500,000.

Concluding Remarks

Oliver’s analysis underscores the necessity of calibrating immigration levels to the nation’s housing supply capabilities. This is imperative not only for alleviating the housing shortage but also for improving overall living standards and housing affordability.

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