Reducing immigration is one of the few policy levers left to pull in a national debate on housing affordability that has become paralysed by cynical politics.
The latest house price data from the Bureau of Statistics show a continuing slump in housing affordability, particularly in the ‘bubble cities’ of Melbourne and Sydney.
Average house prices in Melbourne rose 10.8 per cent through 2016 – more than three times the growth in average total earnings in Victoria.
In Sydney, house prices surged ahead of wages by an even bigger margin – they were up 10.3 per cent over the year, while NSW’s average total earnings rose 1.2 per cent.
Elsewhere, there was a 1.5 per cent pull-back in Darwin prices in the last three months of 2016, but all other capitals saw growth – even Perth, which had been in decline for nearly three years.
The causes for the divergence between houses prices and wages are well known – record low interest rates, the ongoing insanity of large tax breaks for property investors, some overseas demand, and rapid population growth.
But which of those can be fixed in the near term?
The Reserve Bank is pretty much paralysed. It wants to cut rates to stimulate the economy, but can’t for fear of blowing the housing credit bubble larger still. And it can’t raise rates to choke off demand for credit, without suffocating the rest of the economy.
The Coalition has ruled out fixing the negative gearing and capital gains problem, and Labor’s plan, while a step in the right direction, would take years to make much difference.
Illegal housing demand from abroad – particularly Chinese buyers flouting the prohibition on buying established homes – is being policed more effectively than two years ago, and capital flows out of China have themselves been cut to a trickle by Chinese authorities.
That just leaves slowing population growth as a near-term way to take some heat out of the market.
Telling families to stop having kids won’t work. And short of handing out free whiskey and cigars, we’re not going to see ageing Australians dropping off the perch any earlier – quite the reverse, thanks to constantly improving medical treatments.
So the only way to slow population growth is to reduce immigration.
This barrow is being pushed by Pauline Hanson’s One Nation Party, and Liberal defector Cory Bernardi, though both conflate the economic arguments for doing so with race-based policies, particularly aimed at Muslim immigration.
That’s a pity. There are good economic arguments for reducing the net-migration numbers for a few years, but undermining Australia’s strong record on multiculturalism along the way would be a huge mistake.
Former Labor leader Mark Latham, who has a better record of defending multiculturalism, gave a good speech over the weekend on the relationship between immigration and housing affordability.
He slammed the notion that increasing housing supply would solve the problem, in Sydney at least.
He told a Sustainable Australia conference: “There’s housing estates popping out of the ground like mushrooms … So there’s lots of supply, but it’s not keeping up with the demand. The fact that we are adding 80,000 people to Sydney every year is being driven by immigration …”
Importantly, his argument extends to inadequate infrastructure connecting such new land releases: “…traveling times are horrendous. And the supply-side fetish of ‘just build more housing estates’ is making Sydney dysfunctional.”
The Department of Immigration and Border Protection estimates net migration for the past 12 months has been 209,000 people.
That’s forecast to rise to 226,000 in the next financial year – the same level seen in 2006 when the first phase of the mining boom was hitting its stride.
If there was a time to reset Australia’s migration trajectory, a period of soaring house prices and stagnant wages would be it.