It has been widely reported that Australia is facing a housing crisis, with rents sharply increasing and limited rental vacancies. At the same time, rising interest rates are making it more difficult for people to buy their own homes. In a recent Economics Explored episode, renowned Australian financial journalist, Alan Kohler, discussed the current situation and the potential for an explosive housing crisis if the federal government does not start coordinating immigration and housing. Economics Explored is hosted by Adept Economics Director Gene Tunny.
Kohler’s concern stems from the fact that Australia’s housing crisis will only get worse, as confirmed by the increase in immigration this financial year, which is expected to reach 400,000 in net terms (according to federal budget estimates). The rental vacancy rate remains low at around 1.2% nationally (see SQM Research – Property – Residential Vacancy Rates – National). Kohler’s investigation of job and rental vacancies in various places around the country found that the number of job ads vastly exceeded the number of places to live that were available.
The federal government’s plan to address this issue is the Housing Australia Future Fund (HAFF), with a proposed $10 billion in it, and the earnings from that fund will be used to build houses. However, Kohler believes this will only scratch the surface of the problem, as the number of places needed is vastly in excess of that. There has been some criticism of the structure of the HAFF, with some commentators suggesting that it is futile and bureaucratic, and the money may disappear before it gets anywhere (e.g. see Cameron Murray’s submission on the HAFF).
Kohler believes that the main thing the government needs to do is to have a hard look at how many houses are required, given the immigration policy that they have initiated. Coordination between immigration and housing is crucial, and Kohler suggests that the government needs to take a more proactive approach to address the issue. This could involve measures such as lessening restrictions on residential housing developments, providing incentives for developers to build affordable housing, and increasing funding for social housing.
Incidentally, as Gene noted in his afterword, there is evidence from Auckland that upzoning policies can improve housing affordability. Upzoning allows the redevelopment into higher-density uses of land previously zoned for low-density residential use. After the upzoning began in 2016, Auckland experienced a building boom. And since 2016 rents have only increased 10-20 percent in Auckland compared with 40 percent in Wellington. It looks like there’s an even starker difference for house prices, which have gone up only 20 percent in Auckland compared with 70 percent outside Auckland, according to a Financial Review report. As always, we need to ensure we understand all the facts, conscious that correlation doesn’t necessarily mean causation. That said, the evidence does look promising and makes sense from a theoretical perspective.
In summary, in Kohler’s view, the housing crisis in Australia is a complex and challenging problem that requires a coordinated and proactive approach from the government. The current situation is unsustainable, and if left unchecked, without coordination of immigration and housing construction, it could lead to a prolonged housing crisis.
Published on 8 June 2023. This article was prepared by Adept Economics Economic Director Gene Tunny. For further information please get in touch with us via email@example.com or by calling us on 1300 169 870.