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Alan Kohler: Anything easy and popular won’t work to solve housing affordability

So Peter Dutton wants to have a housing election, and his housing policy is to cut immigration to 140,000 a year and cap foreign student visas.

That’s not a housing policy, it’s just a cut in immigration.

That doesn’t mean it’s a terrible idea, since housing has become unaffordable as a result of too much demand chasing too little supply. But making it all about one of the many things that have caused it kind of betrays the real agenda, which is to whip up a bit of the old anti-immigrant mouth froth.

John Howard had the right idea. He blew the immigration dog-whistle with stern treatment of refugees while quietly doubling immigration to suppress wages – from 140,000 a year, ironically the number Dutton wants to get it back to.

Rudd, Gillard, Abbott, Turnbull and Morrison all kept the level of immigration historically high. Between the 2007 election and the start of the pandemic in 2020, net permanent and long-term migration averaged 240,000 per year.

Cause of crisis

Over the four years since the pandemic began in March 2020, net permanent migration has averaged 200,000 per year – it was a total of minus 40,000 between April 2020 and November 2021, and then 840,000 have arrived since then, which is a record annual rate of 373,000.

But to the extent that Australia’s housing crisis is caused by immigration, it was the decade between 2005 and 2015 that set us up for a crisis.

At the same time, the variable mortgage rate fell from 7.5 per cent to 2 per cent and mortgage brokers who are paid sales commissions instead of salaries went from a third of the housing loan market to three-quarters, taking it from a rationing business to a souped-up sales business.

Also, Airbnb started operating in Australia, beginning a mass transfer of long-term rentals to short term.

If you were serious about dealing with high house prices and rents as Peter Dutton says he is, you would try to come up with a multi-layered policy that dealt with both supply and demand.

Connection needed

That policy might include some way of connecting immigration to the supply of housing and the capacity of the construction industry.

Just publishing the two sets of data together would probably be enough, like a joint monthly press release from the housing and immigration ministers saying “the number of visas issued this month was … and the number of dwellings completed was …”.

Even better would be something connecting the number of dwelling approvals with the proposed migrant intake in nine months’ time, so there was time to adjust the latter if a problem loomed.

If those numbers were published together, it would soon be obvious whether the demand/supply balance was getting better or worse. If more than enough houses were being built to accommodate the net new arrivals – happiness. If not, adjustment needed.

Would 140,000 be a good number? Well, yes, it probably would, if you were only concerned with housing. Dwelling approvals are running about 13,000 a month, or 156,000 a year, and completions in the latest quarter were 30,000, or an annual rate of 120,000. Given there is an average of 2.4 people per dwelling in Australia, that would be fine. It would almost be fine if each migrant had a place to themselves.

The problem is doing it, not just whistling it, and then, if it happens, dealing with the unintended consequences.

Supply-demand dilemma

Peter Dutton said last week that limiting the migrant intake as suggested would “free up” almost 40,000 additional homes in the first year and 100,000 over five years.

No idea where he gets those numbers from, but since he’s talking about cutting immigration by 45,000 a year, he seems to be assuming that the ones he would have stopped would have grabbed a house each if they’d been let in.

But if housing demand was curtailed, supply would be as well. As developer Tim Gurner told The Age last week: “By reducing demand even more, supply completely evaporates, which has huge ramifications for jobs and productivity.”

If Mr Dutton wanted to “free up” a lot of houses he would either have to build them himself, or force those who have an empty beach house to make it available.

Another way to free up houses would be to use the existing housing stock more fully. Reserve Bank chief economist Sarah Hunter said last week that returning the number of people per house back to what it used to be – 2.8 (currently 2.5) would free up 1.2 million dwellings.

Student scapegoats

Capping student visas, as Peter Dutton also wants to do, would have massive consequences for Australia’s tertiary education sector.

As government funds have been withdrawn, the unis have turned to foreign students to stay the same size, employ the same number of academics and remain viable. If the number of foreign students is reduced, government funding would have to be increased, or universities would shrink. There would be less education, fewer degrees and less research.

Service industries like aged care and child care would be starved of labour, driving up wages and inflation. Interest rates would be forced higher.

There would be no one to deliver takeaway food on electric bicycles, so people would have to get it themselves, or cook! Riots would break out.

But we won’t have to worry. Cutting immigration and student visas is one of those ideas, like densifying the cities, fast trains and abolishing negative gearing and the capital gains tax discount, that sounds great in a budget reply speech or at a conference on housing affordability, but hard to pull off in practice.

Improving housing affordability would be difficult and unpopular.

Anything that seems easy and popular won’t work.

Alan Kohler writes weekly for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor.

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