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A leading economist has called for the number of new migrants arriving in Australia to be capped to tackle the housing affordability crisis.
AMP chief economist Shane Oliver told the Australian Financial Review Property Summit the root cause of Australia’s housing crisis was record immigration.
Rapid population growth has left middle- and middle-income people unable to afford housing in Australia’s major capital cities, a situation unthinkable a generation ago.
Dr Oliver made the comments as new data from the Australian Bureau of Statistics shows a record 454,400 migrants moved to Australia in the year to March on a net basis, pushing the population to -above the 26.5 million mark.
Australia’s population growth rate of 2.2 percent is already among the highest in the developed world, with only Canada and Singapore having a higher growth rate.
Dr Oliver said Australia’s immigration levels since 2005 were “well above” the level of supply the country actually needs.
Therefore, immigration-driven population growth must reflect the market’s ability to provide enough completed housing, the economist said.
“Going back to the recession after the 1990s, immigration levels were around 120,000 a year,” Dr Oliver said at Tuesday’s summit.
“Then they increased to 250,000 or 260,000 a year.” So there are actually 150,000 additional inhabitants during this period.
“But if you look at housing completions, they didn’t really increase until we had the apartment construction boom briefly between 2015 and 2018.”
AMP chief economist Shane Oliver (pictured) told the AFR Property Summit on Tuesday that the root cause of Australia’s housing crisis was record levels of immigration.
Dr Oliver said immigration levels in Australia since 2005 were “well above” the level of supply the country actually needs (pictured, Sydney’s Westfield shopping centre).
“And that’s the real problem here. We inject people into the economy and then we all go ‘surprise, surprise’, house prices are expensive,” he continued.
Dr Oliver said this was what was causing Australia’s housing affordability problem.
“I think we need to calibrate these immigration levels based on the ability of the real estate market to supply new properties and allow each year to reduce this cumulative undersupply,” he said.
Other experts at the summit echoed Dr. Oliver’s sentiments.
Respected property analyst Louis Christopher has called for a cap of 90,000 new migrants over two years while the property market catches up.
The managing director of SQM Research said modeling showed that if immigration was capped at historic levels, Australia’s rental crisis would end by mid-2025.
Nearly 1.5 million migrants are expected to arrive in Australia over the next five years, with population growth of 1.9 percent last year, among the highest in the developed world.
Dr Oliver has previously argued that immigration-driven population growth is making Australians less productive, preventing them from becoming homeowners and fueling inflation.
“Very strong population growth accompanied by an inadequate response in terms of infrastructure and housing supply has led to urban congestion and low housing costs which contribute to low productivity growth,” he said. -he declares.
The economist also argued that strong population growth meant investors were buying homes for capital gain, to take advantage of a housing shortage, instead of investing their money in new businesses or new actions.
“Increased speculative activity around housing diverts resources from more productive uses,” he said.
A leading economist has claimed that high immigration is the root cause of Australia’s housing crisis and is keeping Australians out of home ownership (pictured, an auctioneer in Sydney).
Australia’s annual net level of overseas migration has been consistently in the six-figure range since 1999, excluding the Covid pandemic in 2020 and 2021, when skilled migrants and international students were included .
Dr Oliver said that unless productivity growth returned to 1990s levels, inflation would remain high for longer, but he feared that both major political parties would be reluctant to liberalize labor laws.
“After nearly two decades of policy drift, declining productivity growth is weighing on growth in living standards and sustainable real wage growth,” he said.
“Political will for the kind of economic reforms needed (particularly on taxes and labor markets) for another 1990s-style rebound in productivity growth seems unlikely.
“This in turn makes the RBA’s job of reducing inflation somewhat more difficult and will limit investment returns in the medium term.”
The Reserve Bank of Australia’s 12 interest rate hikes since May 2022 have failed to halt the housing market recovery, with Sydney’s median house price rising 8.3% since January to reach $1.36 million.
Even with a 20 per cent mortgage deposit of $271,987, an average full-time worker with a salary of $95,581 would still owe $1.088 million.
The debt-to-income ratio of 11.4 is well above the Australian Prudential Regulatory Authority’s threshold of “six” for mortgage stress.
That means a couple with a combined income of $180,000 would struggle to buy a typical house in Sydney, or even get bank approval, because rising rates have limited what they can lend.
The same would be true for someone earning $180,000, even if they are in the top four percent of income earners by tax bracket.