Don’t blame migrants for the housing crisis - Grattan Institute

Peter Dutton is accusing the Albanese government of making Australia’s housing crisis worse by running a ‘‘Big Australia’’ migration policy.

He’s right that Australia has an acute shortage of housing. Rental vacancy rates are at record lows. Rents are rising by as much as 30 per cent a year. Shocking stories abound of Australians sleeping in tents, caravans, or even their cars because they can’t find a home they can afford to rent.

He’s also right that last week’s budget predicted 1.5 million migrants in the next five years.

But he’s wrong to suggest record migration is the result of policy decisions by the Albanese government. And he’s wrong to suggest that migration is the main cause of Australians’ housing woes.

About a quarter of those 1.5 million migrants – 400,000 in the current financial year – are already here. And net overseas migration will fall to 315,000 next financial year, and then to 260,000 in the years after that.

Most of the increase in migrants simply reflects the reopening of Australia’s borders after Covid, rather than any government policy change.

Over the first two years of the pandemic, nearly 400,000 international students, working holiday-makers and temporary sponsored workers left Australia. In the past year, the number of these temporary visa-holders in Australia has rebounded to pre-pandemic levels.

The government’s decision to increase the annual permanent migrant intake from 160,000 a year before the pandemic to 195,000 for 2022-23, and down to 190,000 for 2023-24, has had little impact on migration numbers to date. That’s because most permanent visas are issued to migrants already here on temporary visas. But if the higher permanent intake is continued, it will add an extra 30,000 a year to net overseas migration in the long term as more temporary visa-holders stay in Australia.

The single biggest policy change contributing to record migrant numbers is the pandemic-era decision by the former Coalition government to first relax, and then completely uncap, working hours for international students from January 2022. The Albanese government has moved to recap students’ work hours – at a higher rate of 48 hours per fortnight – from 1 July this year.

Rather than a ‘‘Big Australia’’ policy, the contribution of migration to Australia’s population is expected to remain smaller than was expected before Covid for nearly a decade. This year’s budget predicts that by 2024 there will still be 215,000 fewer migrants in Australia than the Coalition government had expected in the 2019 budget.

Migration certainly means we need more homes. But how does a smaller population than was expected just four years ago lead to a rental crisis?

The biggest change is that Australians are demanding more housing, on average, than we used to. Covid lockdowns and the work-from-home revolution have spurred a ‘‘race for space’’. People want more space to themselves, either by taking an extra bedroom as a home office or by moving out of the family home or a share house.

The Reserve Bank estimates that the number of Australians living in each home fell from an average of 2.55 people in late-2020 to 2.48 people by mid-2022. That change alone implies we need an extra 275,000 homes just to house the existing population. Some of this change will reverse now in response to higher rents, but many Australians will keep working from home permanently.

All this is cold comfort to families desperate to find somewhere affordable to live. Especially as the rental crisis is going to get worse before it gets better, because new housing construction is expected to slow as 11 straight interest rate rises bite and rising costs send many builders into liquidation.

Here Dutton is right: the Albanese government’s plans for housing remain grossly inadequate given the size of the problem.

The planned $10bn Housing Australia Future Fund – which remains stalled in the Senate – would fund an extra 30,000 social and affordable homes over five years. Extra social housing is needed to help those at acute risk of homelessness, but it won’t boost overall housing supply by much. Neither will the 15 per cent increase in Rent Assistance, no matter how badly it’s needed.

The government points to extra tax incentives for build-to-rent, which it argues will lift construction numbers. But what’s the point of extra tax incentives if the states’ land-use planning rules prevent the extra homes from ever being built?

And it’s here that the much-vaunted Housing Accord lacks the substance needed to fulfil on its ambitions.

Australia has not built enough housing to meet the needs of its growing population. Construction is constrained by land-use planning rules that limit development in many inner and middle-ring suburbs.

Things will not get better unless the Albanese government puts enough money on the table to persuade state governments to ease land-use planning rules, to enable more housing.

There’s plenty of precedent. Under the national competition policy, the federal government paid the states nearly $6bn over 10 years in exchange for much-needed regulatory and competition reform.

The Productivity Com­mission later concluded that the benefits of the policy massively outweighed the costs.

Building an extra 50,000 homes each year for the next decade could result in house prices and rents being 10-to-20 per cent lower than they would be otherwise.

Peter Dutton is wrong to blame our housing crisis on migration. But he’s right that the government needs a better plan to fix it.

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