If we want more migrants, we’ll need more homes

Australia’s migration policy is its de-facto population policy. Increasing its permanent migrant intake will boost Australia’s population, and housing demand, in the long term.

The problem is that rents are already surging, and many of Australia’s most vulnerable are suffering as a result. Less than 1 per cent of rental properties are currently vacant – the lowest level on record. The typical asking rent on a new property is up nearly 14 per cent nationally over the past year. The regions are not immune either, with the work-from-home revolution driving an exodus from the cities, pushing many in regional areas into acute rental stress and homelessness.

Not surprisingly, Australia’s population growth slowed sharply during the COVID pandemic thanks to international border closures – over the past two years 200,000 households that otherwise would have migrated to Australia didn’t come.

But this temporary pause in migration did not free up housing stock. With many people feeling the need for more living space during the pandemic, the average size of households shrank. The Reserve Bank of Australia estimates that this trend created demand for an extra 140,000 homes, thus offsetting the fall in population growth. And now that borders have reopened, population growth, and housing demand, is expected to rebound sharply.

Housing demand from extra immigration shouldn’t lead to higher prices if enough dwellings are built quickly and at low cost. But housing construction hasn’t kept up. Reserve Bank researchers estimated that the high migration in the first decade of this century saw housing rents rise 9 per cent higher by 2018 than they would have been if population growth had stayed at 2005 levels.

We estimate that increasing the annual migrant intake by 40,000 a year would, over a decade, push rents up by up to 5 per cent. Lower-income renters would be hit hardest.

Migration provides big benefits to the Australian economy – not least since skilled migrants pay much more in taxes than they draw on in services. Grattan Institute modelling suggests that increasing the size of the permanent intake from 160,000 to 200,000, and allocating those extra visas to skilled workers, could offer a $38 billion boost to federal and state governments combined over the next decade. That’s as large a budget saving as abolishing negative gearing and halving the capital gains tax discount.

But it’s a matter of simple logic that increasing the population without building more housing will worsen our housing affordability woes.

Any increase in migration levels must go hand in hand with concerted action on housing supply. It’s simple – if we want to increase the number of Australians, we need to increase the number of homes. Everyone needs somewhere to live.

The key problem is that many states and local governments restrict medium- and high-density developments to appease local residents concerned about road congestion, parking problems, and damage to neighbourhood character. The people who might live in new housing – were it to be built – don’t get a say.

The states, rather than the national government, have constitutional responsibility for land-use planning. But the federal government can and should help to boost the supply of housing. It should provide financial incentives to state and territory governments to reform their land-use planning regimes in ways that will boost supply.

There’s plenty of precedent. Under the national competition policy, the federal government paid the states nearly $6 billion 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 see house prices and rents 10 to 20 per cent lower than they would be otherwise. But building more homes will take time to improve affordability, and won’t help those suffering right now at the coalface of the current rental crisis.

In the short term, it is critical that the government act to protect Australia’s most vulnerable renters. Any boost to migration must also be paired with an immediate 40 per cent boost to Commonwealth Rent Assistance, worth roughly $1450 a year, at an annual cost of around $1.5 billion. And the Albanese government should double the size of its new Housing Australia Future Fund to $20 billion to provide more social housing to those at risk of homelessness.

More migration doesn’t need to make our housing woes worse. But if we are to reap all the benefits of higher migration, it must go hand-in-hand with serious reforms aimed at tackling housing affordability.