This episode delves into the pressing issues of housing and immigration in Australia, featuring a conversation with renowned financial journalist, Alan Kohler. The discussion revolves around the impact of high immigration rates on housing demand and affordability, emphasizing the need for coordination between immigration and housing policies. The episode also highlights the supply-side factors contributing to the housing crisis, such as restrictions on housing development and protections for character housing and heritage. The host Gene Tunny suggests the need for a national debate and parliamentary inquiry into Australia’s immigration rate and population growth to weigh the benefits of immigration against the challenges of housing and infrastructure.
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What’s covered in EP191
- [00:01:58] Australia’s housing crisis.
- [00:06:47] The need to coordinate immigration and housing.
- [00:08:00] Short-term vs long-term rental – the impact of AirBnB, etc.
- [00:13:05] Local governments and the housing shortage.
- [00:18:30] Drop in average housing size.
- [00:22:32] Increasing housing supply as a solution.
- [00:24:17] Immigration and housing affordability.
- [00:28:07] The pandemic response and the housing crisis.
Links relevant to the conversation
Alan Kohler’s articles:
Labor immigration and housing policies are an explosive mix
Alan Kohler: Population growth equals economic growth, but for whom?
RBA research on average household size:
A New Measure of Average Household Size | Bulletin – March 2023 | RBA
Previous Economics Explored episodes on housing:
The high cost of housing and what to do about it w/ Peter Tulip, CIS – EP134 – Economics Explored
Australian Financial Review articles on housing:
Housing supply crisis: How Auckland took on the NIMBYs and won
1.3 million missing homes blamed on councils and NIMBYs
Transcript:
Immigration & Australia’s housing crisis w/ Alan Kohler – EP191
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:06
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. In this episode, I chat with renowned Australian financial journalist Alan Koehler about housing immigration in Australia. These are related highly topical issues in this country at the moment. You’re in Australia, you’ll probably know Alan from his nightly finance report on ABC News. Alan was usually popular in Treasury when I was there, because he’d always feature an interesting chart and his finance report, and would often talk about it the next day. In addition to being a finance reporter, and presenter at the ABC, Alan was the founder of the Eureka report and business spectator now owned by News Corp. Many thanks to Darren Brady Nelson for connecting me with Alan, please make sure you stick around after the end of the interview, because I’ll have a few words to say to wrap up. Okay, let’s get into the episode. I hope you enjoy my conversation with Alan cola. Alan cola. Thanks for joining me.
Alan Kohler 01:43
Not at all.
Gene Tunny 01:45
Alan, you’ve written some really great commentary on what’s been happening with housing and immigration here in Australia really frank and fearless commentary. And I’m glad to have you on the show to chat about that. In October last year, you wrote, If the Labour government doesn’t start coordinating immigration and housing, the mixture will be explosive, because Australia’s housing crisis is going to be horrific next year. I’d like to ask to start with Have there been any developments since you wrote that article that makes you more or less optimistic,
Alan Kohler 02:20
I suppose less optimistic in the sense that the increase in immigration this year has confirmed it’s 400,000. It’s it’s mainly catch up. But it’s clear that we’re back into higher levels of immigration. And the rental vacancy rate has not really moved. It’s gone from 1.1%, nationally to 1.2%. So that column II referred to was really just investigating job vacancies, and rental vacancies in various places around the country as well as nationally. So what I did was I went around to various places in the country, both cities and country towns, and looked at the number of jobs that were advertised on seek and compare that with the number of rental properties available on RPA. And just found that the number of job applications of job heads were vastly in excess of the number of places to live, if it was available. So you know, you’re wondering what’s going to happen. And when all these businesses needing staff advertising for staff in places like Warren ball or the Sydney Hills district or Cannes or Calgary? I mean, I looked at all these places, and there was a vast difference in the number of job vacancies and job ads and the number of places to rent.
Gene Tunny 03:50
Yeah, yeah, absolutely. And you, you suggested that it could be horrific next year. Do you think it’s horrific at the moment?
Alan Kohler 03:57
Well, it’s certainly not getting any better. For sure. I mean, the government’s plan is to is to have a housing. Future Fund, as it’s called, was $10 billion in which and the earnings from that fund will be used to build houses, and they’re proposing to build 30,000 over five years. But really, that’ll scratch the surface. I mean, the number of places that are needed is vastly in excess of that.
Gene Tunny 04:23
Do you have any thoughts on the structure of that Future Fund? There’s been some criticism of it by various commentators such as John Corrigan, and Cameron, Mary and the greens are that they think it’s a bit futile. Do you have any thoughts on that yourself? I mean, I know you just said that. You think it’s just scratches the surface, but any thoughts on the structure of it what they’re trying to do there?
Alan Kohler 04:44
Well, the only thought I have is that it’s better than nothing. It seems to be quite complicated. The way they’ve got the money is going to be given to the the actual Future Fund Manager and then there’s kind of various places that the earnings go to some some of the states Some of the Commonwealth I mean, I look at this kind of bureaucratic structure and feel like the money will disappear before it gets anywhere. Because, you know, bureaucracies tend to make money disappear.
Gene Tunny 05:15
Yes. And the fund managers or, you know, they’ll they’ll earn some fees off it, too. Of course, I think that’s one of the points that that Cameron mentioned. Can I ask, what do you have in mind by starting to coordinate immigration and housing? What what sort of things do you have in mind there? Alan, have you thought about how they could do that?
Alan Kohler 05:37
Well, I think the main thing they need to do is actually have a hard look at how many houses are required, given the immigration policy that they have initiated. So they, they make a decision about immigration, they decide how many people are going to come to the country, right. And then they, they also have data on how many houses are available. And therefore they can know what housing is required to house, the people who are being invited to come to Australia, and also the people who are here and what the sort of current demand is. And then I need to find a way to create to make that housing available. Because otherwise, what you end up with is a soaring in rent, which is what’s occurred, there’s been huge increases in rent over the last couple of years. And also you get huge increases in house prices, because of the demand. And there’s just simply a lack of supply. So what I suppose what I’m talking about is, you know, actually doing something at the government level to create the housing. Now the question is, what will it be because, you know, there’s not enough, it takes too long to build houses, even if they even if the housing Future Fund had enough money in it to build enough housing, it will take you know, a couple of years to build the houses. So it’s not as if that’s going to be a quick solution. But one of the things I’ve been I’ve also been investigating is the question of short term rentals and Airbnb. And I did another column in which I kind of observed that the number of rental properties available in Australia, at the time, I think was a month or two ago, the number of rental properties on raa that were available in Australia was 51,000. And the number of properties on Airbnb and other short term rental sites was 300,000. Right? So there’s a huge difference. And also, I looked into the difference in rent that you get, for the same property as a as a lease on our a and on Airbnb and the differences about three times I think that there needs to be a difference because putting it on Airbnb is risky, because you might get a party or you might rent it at all. So there is a need for a risk premium. But the question is how much of a risk premium and I think it’s self evident that the risk premium currently, that’s available on Airbnb is too high, because not too many people are putting their properties on Airbnb rather than putting it on REO for lease, which is leading to a bit of a shortfall. The question is, how do you how do you redress that imbalance? How do you get, say 100,000 properties off Airbnb? And onto the long term lease rental market? I think there’s some way that the government needs to find to to achieve that. What I suggested was some some use of the Kevin Rudd rental subsidy scheme for the introduced I can’t remember the name of it now. But there was a rental subsidy scheme that was abolished by the coalition that was introduced by Kevin Rudd that was aimed at low income earners. And maybe there’s a way of modifying that in some way that could, in a sense, redress the imbalance in rent between short term and long term rental. But look, you know, I don’t have all the answers. I’m just saying that there needs to be some thought put into, not just into, into getting people into the country, which we clearly need. I mean, we need the immigration, it’s not I think the answer is to not have the immigration because the staff shortage is everywhere. Businesses are screaming for staff. And, you know, and also the care, the care industry, the care sector, healthcare, aged care, childcare, you know, we’re all struggling for staff so we need the immigration and also baby boomers and they’re retiring so there’s needs to at a higher level in general of immigration, to deal with baby boomer retirement, what I’m saying is that they need to combine some sort of housing policy with immigration policy and think about what they’re doing.
Gene Tunny 10:16
Yeah, yeah. I’m just trying to remember it was the Kevin Rudd policy, it may have been the National Rental Affordability Scheme. Was it N RAS? I can correct? Yeah. Yeah, it might put a link in the show notes or a few N RAS properties. out near Bowen Hills, I’m in Brisbane. So I think I think there are n RAS on with immigration and housing. So you mentioned I mean, we do need immigration. But we’ve suddenly got this 400,000 per year of immigration. Would there be scope for adjusting that from year to year, depending on labour market conditions of housing? Is that something that they should be actively considering? And more broadly, do we need a national? Would you say we need a national housing and population policy? And we need to have that debate about what’s the optimal rate of immigration given these other circumstances? Well,
Alan Kohler 11:13
it’s not 400,000 per year, it’s just 400,000. This year as a catch up for the pandemic when there was no immigration. So, you know, I think the what we’re heading back towards, as a long term rate of immigration is somewhere between 202 130,000, demographers are struggling to say there’s more likely to be 200,000, the Treasury forecast in the budget was 230,000. Long term. You know, I don’t know what it is. But it’ll be something around about 200,000, I guess. And that seems to be what’s needed, you know, to replace the baby boomers and to, you know, just to keep the place ticking over. So I think if what you’re talking about is some sort of adjustment separately to immigration to, you know, meet the housing that’s available. I think that to be the other way around that, really, the immigration needs to be the starting point. And they need to do something about the housing, short term in a hurry, and not just muck around with long term solutions.
Gene Tunny 12:21
Okay, we’ll take a short break here for a word from our sponsor.
Female speaker 12:27
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Gene Tunny 12:56
Now back to the show. To what extent you see the housing shortage as a result of restrictions at the local government level. Is it due to zoning? Is it due to character protection of character housing of heritage?
Alan Kohler 13:14
Oh, yeah, no doubt about it. I mean, I had a coffee the other day with a bloke who’s running a campaign in Melbourne, called EMB. Yes, in my backyard it stands for and it was started in San Francisco, which is got to Herrera to horrendous NIMBY problem in San Francisco. There’s there’s also a chapter in Canberra and one in Sydney, one in Brisbane. So there’s, they’re starting up here. They’re all young people, and they’re trying to get medium density housing built in the suburbs. You know, I really admire them going on, I think that that’s what’s required. That’s one of the problems in Australia is that we have a high density housing in and near the city with high rise. And then we have large blocks. We don’t have anything much in between we don’t have we don’t have the sort of four storey buildings that other countries do through the suburbs to allow people to allow a lot more people to live close to the CBD. I mean, one of the problems we have in Australia is that we have each city has one CBD. And so the further out you get, the more inconvenient it is, and so that that really puts a premium on housing, that’s, you know, within half an hour or an hour of the CBD. And because of councils zoning, there’s a limit on the amount of housing that’s, that’s being built in those, you know, within the hour commute from the CBD. And so, you know, that’s, that’s what’s required really, I mean, the characters the these people in in the MB movement going on and what they’re doing is they Going to the council meetings. So they’re not just putting out press releases, they’re going to the council meetings and speaking in favour of in favour of developments, housing, you know, apartment developments in those suburbs, because the one of the points they make is that when councils consider these proposal development proposals for, say, a five to 10 Storey, housing apartment block, the only people who bother turning up at the council to talk about it are those who are against it. And there’s never anybody who’s speaking in favour of it apart from the developer, which I think is an interesting point. You know, so the council’s really aren’t a hiding to nothing. I mean, they’re elected by the local constituents in, in their wards. And, you know, the constituents are all against anything being built. So, you know, they’re more or less on a hiding to nothing, you know, and I think so, there’s a bloke called Simon Kirsten maca, who’s a demographer in Melbourne, who I talked to a bit than his solution is for the federal government to give councils a quota of dwellings that they need to approve each year. And if they fail to meet the quota, they lose funding. And if they fail to meet the quota for the second year running, the administer administrators put in they they sacked, which is a pretty tough kind of solution. But he you know, he makes the valid point that this is a real crisis. Yes, we’re just not building enough housing. And we’re not building enough medium density housing, in places where it’s convenient to live. I mean, speaking in Melbourne, I’m not sure where love the place to be speaking about Melbourne, there’s a lot of fear a bit of housing being built in places like where are we in tan Eaton, you know, far our suburbs. But they’re incredibly inconvenient. I mean, the infrastructure is no good, you can’t get out of the place. People are spending an hour in the car, just to get their kids to school. You know, I just think that, you know, there’s there’s a real mismatch, there’s a real problem with where the housing is being built, and the amount of housing that’s being built in places that are convenient.
Gene Tunny 17:29
Yeah, I agree regarding the mismatch. So in Brisbane, here, the only places in the inner city where we’ve really seen an expansion of suppliers in former light industrial commercial areas where they’ve been able to redevelop such as at West End, or Milton and a new state, and we’ve got a lot of high density there. But yeah, we’re missing that, that more medium density, which I think would be really desirable. And I liked that idea of the financial penalties for council. I think that’s, that’s terrific. Another thing I’d like to ask Alan is about the there was a huge drop in the average housing size, and that’s associated Well, there are various factors. But during the pandemic we had, we had cheap money, we had people moving out of home earlier or leaving group houses. And we’ve got also a greater desire for space due to people working from home. And this has been people argued, some commentators or analysts are arguing that this is the big problem. Now it was this unexpected drop in that average housing size. And that’s what’s causing all the problems we’re seeing now. What I’d like to ask is, do you think that was, was that something that should have? I mean, is that something that’s unforeseeable and therefore, well, this is a, you know, this is a problem, obviously, but it was something that you really couldn’t do much about, and therefore, we just have to let it sort of play itself out. I mean, there’s, there’s not time for panic. I’m trying to think of the best way to ask this well, where I’m going with that. But that’s that’s one of the first things we’ve seen, is this drop in the average housing size? Do you have any thoughts on what’s happened there?
Alan Kohler 19:02
Well, the average house size, the average, the average number of people per house has definitely declined. It’s, I think it’s down to two and a half. I can’t remember what it is. But it’s certainly down from four to two and a half, something like that over over a decade. And I certainly when I was a kid, all the children that shared bedrooms, I mean, our I’ve got three sisters, there’s four of us. And it was a three bedroom house. But these days, all kids have to have their own bedroom, right? I mean, start the houses have to be bigger, to have the children, but also there are a lot of shared housing, that no longer exists. Look, you know, the number of people per house has definitely declined, but it’s not an act of God, but it’s certainly something has to be taken as a given. It’s not something the government can do anything about. You know, it’s not going to be able to say to we need to have more people that are housing, you know, let’s sort of cram in more on it’s not going to that’s not something government can do so it needs to happen. needs to be taken as a given that that’s the way it is. I mean, I think it’s starting to rise again now is because of the cost of rent, which is driving, particularly young people back into more shared housing. So I think I think the number of people who are house metric is on the rise again. But I don’t think it’s gonna get back to the where to where it was.
Gene Tunny 20:21
Right. Yeah. I think there was some RBI analysis that showed that prior to the pandemic, it was was over 2.55 or something like that. And then it dropped down to 2.4. A, and they’re saying that this meant that there was demand for an additional 120,000 houses or something. So that’s part of the problem. We’ve got it. At the moment. It was this. That’s one of the shocks that’s been experienced. And but I mean, so there’s this debate currently between or is it just that due to that shock, or is it due to the long term problem with building enough housing? I mean, I tend to lean toward the the fact that, you know, we haven’t built enough to because of restrictions in the past, or the restrictions, we’re still got. But yet, we’ve also got this shock that’s occurred. So it’s a combination of factors, what we’re seeing now,
Alan Kohler 21:11
certainly not one factor. I mean, there’s a number of factors. Yeah. Supply being restricted, declining household size, immigration increased in 2006, from 170 to 260,000. And kind of more or less stayed there. So, so that was a huge increase in the number of people coming into the country. And that’s kind of has continued and will continue. So there’s so there’s been a step up in immigration at the same time as house, household size falls and suppliers restricted. And also, don’t forget negative gearing and the capital gains tax discount, which is encouraging demand from investors. And also, the other thing that’s been driving prices up is all of the first homebuyer grants, which tend to just go on to the price.
Gene Tunny 22:03
Okay, Alan, Carl, or any final remarks on immigration and housing. I’ve really enjoyed this conversation. Just anything you’d like to add before we finish up?
Alan Kohler 22:13
No, I think we’ve pretty well covered it and I’ve enjoyed the conversation. Two.
Gene Tunny 22:17
Very good. Thank you, Alan. Really enjoyed it. Thank you. Okay, I hope you found that informative and enjoyable. The main takeaway that I took from my conversation with Alan is that he sees the way to tackle the housing affordability problem is by increasing housing supply. He’s highly conscious of the demand for foreign workers by Australian industry, so he wouldn’t want to tighten up visa requirements to reduce the rate of immigration. Alan is absolutely right about the need to increase housing supply. I must say, however, that I’d be more willing than Alan to adjust immigration policy settings, given how difficult it is to increase housing supply in the short run. Certainly the Australian government’s proposed housing Australia Future Fund wouldn’t do much as I discussed with Cameron Murray in a bonus episode in late March. In my view, we need to have a national debate, possibly even a parliamentary inquiry into Australia’s rate of immigration. And we need to work out an optimal rate of immigration and indeed, of population growth. There are many benefits from immigration, of course, but they need to be weighed up against the short run challenge of housing so many new people and ensuring that we have sufficient infrastructure. In my view, we should possibly consider population decentralisation strategies. For example, we could relocate some administrative functions of governments to regional areas and hence we’d relocate the public servants. There are several regional cities out there will many regional cities out there that could could be good destinations such as Townsville, for example in North Queensland. We should also ask, why do we need to rely so heavily on immigration to boost our workforce? In the case of skilled labour? Why aren’t we training enough Australians to meet the needs of business? Furthermore, I’d note that students are a big part of the Margaret intake into Australia. And it’s difficult to argue that they’re mostly filling skilled jobs. The impact of our high rated immigration on housing demand and hence rents and house prices is probably large enough that we should ask whether the benefits to industry are sufficient to offset any adverse impacts on the broader community. Of course, as I discussed with Alan, housing affordability is a multi dimensional challenge. There are demand side factors such as immigration and the reduction in average household size, but there are also supply side factors. One of the supply side issues is definitely the restrictions on housing developments in our Cities, there are too many rules which are constraining the supply of housing and making it more expensive. We have various protections of character housing of heritage, and it makes it much more difficult to develop the housing stock that we need. If you’re a regular listener, you may recall that I spoke with Natalie Raymond from the Brisbane yimby group a couple of years ago. As Alan mentioned, yimby stands for yes, in my backyard. It’s a fantastic movement. I’ll put a link in the show notes to my conversation with Natalie, so you can listen to that episode if you haven’t yet. Again, if you’re a regular listener, you may recall that I also chatted with Peter tulip last year about the high cost of housing. Peter is a former Reserve Bank of Australia economist. He’s now chief economist at the Centre for independent studies where I’m an adjunct fellow. Peters estimated that for detached houses, planning restrictions are estimated to raise house prices 73% in Sydney, 69% in Melbourne, 42% in Brisbane and 54% in Perth. I’ll link to my conversation with Peter in the show notes too. I think it’s a great one. And Pete has done some really rigorous research on how these planning restrictions impact housing, so I recommend checking that out. Another former RBA economist Tony Richards, he’s just published some analysis of the impact of planning restrictions on housing supply, and it’s received some great coverage from my old Treasury colleague, John Keogh, who’s now at the Financial Review. John has summarised this research by Tony Richards as follows. Australia could have built an extra 1.3 million homes over the past 20 years. But costly zoning planning and building red tape imposed by local councils is chiefly to blame for a huge housing under supply. That sounds plausible to me. Indeed, I’ve been on the news here locally because I’ve gone up to the site of a of a redevelopment or proposed redevelopment up in Paddington on the corner of Latrobe and given terrorists with a page of workers club is and they wanted to redevelop that as a mixed use development with residential and commercial. But it was opposed by local residents. And yep, there’s no development there. And I mean, we really need to develop prime sites like that that are well located and think about the interest the greater community interest rather than just the the interest of people within the neighbourhood. We need to think about the greater good. Okay. I should note that there’s some evidence out of Auckland in New Zealand regarding the impact of up zoning on housing affordability, so up zoning is allowing redevelopment or high density uses of land that’s zoned for low density residential use. After up zoning began in Auckland and 2016, there was a building boom. And since 2016, rents in Auckland have only increased 10 to 20%. Compared with 40% in Wellington, it looks like there’s an even starker difference for house prices. So they’ve gone up only 20% in Auckland compared with 70% outside Auckland. So I took those figures from a recent financial review article, which I’ll link to in the show notes. So check out the show notes for any links to any studies or reports I mentioned also for any clarifications in case I miss remembered something or I’ve got something wrong. Okay, I might come back to the Auckland experiment in a future episode to have a closer look at the evidence. As always, we need to make sure we understand all the facts, we need to be conscious that correlation doesn’t necessarily mean causation. And just because something follows something else. That doesn’t mean that they’re related, or there’s a causal relationship. That said the evidence from Auckland does look promising, and it makes sense from a theoretical perspective. Finally, I should note that the housing crisis we’re having in Australia is probably partly due to the pandemic policy response, including Ultra loose monetary policy, cheap money, and the lock downs. These policies stimulated demand for larger houses for those who could afford them. People demanded more space. They demanded studies so they could work from home and the international border closure for nearly two years, followed by its reopening in late 2021. That’s led to a huge amount of catch up immigration. As Alan noted in our conversation, all these new people need places to live in a rental market that is already extremely tight. So in different parts of the country. We’ve had vacancy rates for rental properties of around 1% In some cases under 1% Good paid with around three to 4% Normally, increasingly, we’re learning about the adverse unintended consequences of our pandemic response. Next time, our political leaders should think much more carefully about adopting such extreme policies, given the negative After Effects we’re now seeing, not to mention the adverse impacts including the restrictions on civil liberties that we saw at the time. We need to do much better next time if there’s another pandemic in the future. Okay, that’s about it for me, please let me know what you think about either Alan or I had to say about housing and immigration in this episode, you can email me via contact at economics explored.com. I’d love to hear from you. Thanks for listening. rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@economicsexplored.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
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