Soaring migration is building up to a housing disaster

Too few people are now able to buy homes and far too many people are having difficulties in the rental market. Rents have skyrocketed and vacancies have plummeted. Picture: Monique Harmer

After reading the details of the federal government’s recently released housing package, my immedi­ate reaction was: here’s a perfect script for another episode of Utopia. You can just imagine the scene as Tony, chief of the Nation­al Building Authority, tries to inject a degree of realism into the proposal as Jim, the government liaison officer, becomes more excited.

Jim: The minister thinks a million new homes sounds a bit light-on. We really need to up the number to 1.2 million.

Tony: There is no hope of achieving one million, let alone any more. It would be misleading to have an even higher target. We have never even built one million homes in a five-year period.

Jim: So, 1.2 million it is.

For all the concern that federal and state politicians express about the dire state of the housing market, the reality is that the package announced several weeks ago fails to address one of the key contributors while refloating various policy proposals that haven’t worked in the past.

Too few people are now able to buy homes and far too many people are having difficulties in the rental market. Rents have skyrocketed and vacancies have plummeted. The hope is that by bribing state and local governments, more homes can be built quickly and the housing problems will abate.

The trouble is that the core underlying idea that the only problem is the shortfall in housing is untrue: the gap between housing supply and demand is also explained by the government’s unwillingness to reduce the size of the migrant intake, particularly of temporary entrants.

The Treasurer seems to think the government has no control over migrant numbers: “It’s not a government target or policy. That’s the demand-driven part of the program. It largely reflects that international students are coming back quicker. That’s why we are seeing slightly higher numbers.” This is a complete misreading of the situation.

Let me be clear, the numbers are not slightly higher – they are massively higher. In the 2022 budget, it was predicted that net overseas migration (long-term arrivals minus long-term departures) would rise by 180,000 in 2022-23. The actual figure is 400,000 – more than double. And instead of net overseas migration in 2023-24 being 213,000, the expectation is that it will be 260,000.

The population will grow by 2 per cent and 1.7 per cent in the last and current financial years, respectively, compared with the expectation in the 2022 budget that population would grow by 1.4 per cent a year, which is actually very high by international standards. With that sort of uncontrolled increase in the population, mainly in Melbourne and Sydney, it is inevitable that the housing situation will remain strained and unable to adjust in a reasonable timeframe.

The argument that this surge in migrant numbers is simply making up for the lost migrants during Covid is a fallacy. It’s the equivalent of passing through road works and justifying this to then to break the speed limit. Just in case you think the federal government is about to come to its senses and significantly wind back the migrant intake (in keeping with the preferences of the voters, according to numerous surveys), one of the scenarios modelled in the Intergenerational Report released last week is for a net overseas migration of 285,000 a year.

The government will make the point that population growth has been higher in the past but that was when natural increase was the dominant contributor. It has been only during the past decade or so that immigration has been the largest component of population growth – some two-thirds.

In turn, this has implications for housing demand: having more babies is a very different proposition to whole new families arriving from overseas when it comes to housing.

Given the current circumstances, is it any wonder that rents are rising at rates much higher than inflation and the price of dwellings is escalating, notwithstanding the dozen increases in the cash rate feeding into higher mortgage rates? The demand for housing is rising so rapidly that it is inevitable that there wouldn’t be enough homes.

The ongoing shortages of tradies – in part the result of ill-conceived infrastructure spending by state governments – and building supplies, as well as the collapse of several building companies, are all part of the current calamitous mix. Of course, it is not surprising that developers and state and local governments support the federal government’s housing package because there are dollars being thrown about. But this doesn’t mean the package will come close to succeeding.

For starters, the recent evidence indicates otherwise. In 2017, for instance, in Victoria, a commitment was made by the state government to use government-owned land to allow developers to build new homes on the basis of a so-called inclusionary zone. One hundred social homes were to be built on six separate sites. At this stage, not a single dwelling has been built on any of the sites.

In Queensland, it is estimated that there are at least 100,000 vacant blocks of land, mainly in the southeast corner, that could be used for the construction of homes. At least 1000 of these are earmarked for social housing but, again, none has been built.

For political reasons, state governments find it easier to introduce pro-tenant laws that act to deter investors in rental properties, particularly mum-and-dad ones who dominate the rental market. There is evidence that investors are fleeing the rental market as a result.

The main agenda of the housing package is to force the pace of high-density, high-rise housing in so-called well-located areas – read this as the inner and middle suburbs of the big cities. Whether these new apartment blocks really provide the accommodation that people seek is unclear. But in the face of a severe housing shortage, people will take what they can. There are also serious question marks over the quality of these new buildings given recent experience – think cladding, cracking, lack of ventilation and the like.

The residents who oppose these developments will be vilified as selfish NIMBYs notwithstanding the fact buying a house involves more than just a right over the property; it also covers the nature of the precinct in which is located. It’s why restrictive covenants were once common. But when money is involved, expect these objections to be overridden even though local infrastructure will be significantly stretched in those areas where the high-rise buildings are located.

The bottom line is that it’s odds-on that the housing package will fail to meet the targets and more and more people will be dealing with housing stress. Unless the government is prepared to bite the bullet and reduce the number of migrants entering the country, as well as insist that temporary migrants leave, this will be an ongoing crisis.