One of Australia’s top economists has described housing in Australia as a ‘misery machine’ – and warned interest rate hikes won’t solve the problem of sky-high house prices.
Economist Chris Richardson told the ABC’s Q+A program on Monday night house prices were reaching record highs – despite the Reserve Bank’s 13 interest rate rises in 18 months – because of rapid population growth.
‘Across 40 years, we have turned housing into a misery machine in Australia and this is a stunning national fail,’ he said.
‘We had a terrible experiment over the past year with interest rates roaring up and yet house prices went up.’
One of Australia’s top economists Chris Richardson has described housing in Australia as a ‘misery machine’ because immigration is too high
Mr Richardson, who has previously worked at Treasury and the International Monetary Fund, said the answer to unaffordable housing was to reduce immigration and allow more high-rise unit developments instead of raising interest rates.
‘I used to think interest rates would do the trick.
‘They won’t. We have to build.’
‘How do we build? We need the builders,’ he said.
But Mr Richardson said Australia needed to deal with the ‘incredibly expensive’ way it deals with housing because of council and planning department red tape.
‘After 40 years, we haven’t built and when we do build, we attach all these conditions which make it incredibly expensive,’ he said.
‘I would love not to touch migration but we have screwed this up so massively as a nation that we temporarily, need to look at migration as part of this equation.’
During the last financial year, only 168,231 private homes were built in Australia, with 27,213 finished in June 2023.
That is an 11 per cent drop from 30,685 in March 2022, Australian Bureau of Statistics figures showed.
With an average of 2.5 people per home in Australia, the 420,578 people those properties would theoretically house would be well below the annual population increase of 563,200 in March, covering both net overseas migration and births minus deaths.
In the year to October, 429,580 migrants, on a net basis, moved to Australia – far exceeding the 315,000 level Treasury forecast for 2023-24 in the May Budget.
Economists expecting it to surpass the 500,000 mark in late 2023 – setting a new annual record based on permanent and long-term arrivals.
Rather than cut immigration back to more manageable levels, Prime Minister Anthony Albanese in August announced a plan for Australia to build 1.2million ‘new well-located homes’ over five years, starting on July 1, 2024.
During the last financial year, only 168,231 private homes were built, as annual net immigration levels surpassed 400,000 (pictured are houses at Oran Park in Sydney’s outer south-west)
The target was set by the National Cabinet of mainly Labor premiers, putting pressure on states to change planning laws that give local councils the power to stop high-rise apartment developments to please existing homeowners.
The closest Australia came over a five-year period was building 1.05million homes between 2015 and 2020.
But Chinese capital in residential unit developments has since evaporated as high construction costs have caused house building companies to collapse.
Sydney’s median house price has surged by 12.1 per cent since January to $1.397million, CoreLogic data for October showed.
This was despite the Reserve Bank hiking rates at the most dramatic pace since 1989 to combat high inflation.
A borrower with a 20 per cent deposit and a $1.118million mortgage would need to earn $186,251 to avoid being in mortgage stress, where they owed the bank more than six times their salary.
The cash rate is now at a 12-year high of 4.35 per cent, following the latest November increase, leading to variable mortgage rates creeping closer to 7 per cent.
Renters are also having a difficult time with the national rental vacancy rate at just one per cent in October, SQM Research figures showed.
Renters are also having a difficult time with the national rental vacancy rate at just one per cent in October, SQM Research figures showed (pictured is a Bondi rent queue in Sydney)
House tenants in Melbourne and Perth have seen their weekly rent soar by 19 per cent during the past year, as an influx of international students and skilled migrants compete for rental properties.
Mr Richardson suggested cutting the international student intake to alleviate the housing shortage, which is particularly pronounced in Sydney where the median, weekly house rent is now at $1,012.
‘We have now 725,000 students from the rest of the world studying in Australia – a year ago, that was 555,000,’ he said.
‘We sell education to the world and a lot of that we do well and some of it we don’t do as well, but it is a big part of the increase in the pressure at the moment and it is a relatively concentrated bit where we can make a change.’
In September 2023, 45,090 international students arrived in Australia, marking a 26.8 per cent or 9,540 increase from the same month a year earlier.
Australia’s population growth pace of 2.2 per cent is among the highest in the developed world, after Canada and Singapore.
Sydney is considered the world’s most expensive property market after Hong Kong, when median house prices were compared with median household incomes in an American Demographia study.