2 min read

Numbers tell the story

According to this tweet (usual caveats apply), a new Deutsche Bank report implied that Australia’s housing crisis is about to get much, much worse:

“[W]e estimate that net new migration will be around 530,000 for the financial year 2022-23, but only around 180,000 dwellings will be constructed.

That is, a shortfall of 350,000 dwellings from the ’equilibrium’ requirement.”

530,000 minus 180,000 = 350,000. Right. But that assumes that every single migrant wants their own dwelling. How likely is that? Looking at how the existing population lives, not very:

“The average number of people living in each household has declined from around 2.9 in the mid-1980s to around 2.5 since the early 2000s. More recently, the AHS declined to historical lows of a little below 2.5 people per household. This was driven by changes in Sydney and Melbourne during the pandemic, which were more exposed to health restrictions, lockdowns and changes in migration flows from overseas.”

530,000 divided by 180,000 = 2.94 people per household. Still a shortfall of around 32,000 dwellings but hardly the catastrophe that Deutsche is implying.

Now averages can, of course, be misleading. What is the composition of those 530,000 migrants? We don’t know but we can run a couple of thought experiments. For example, if they’re all students then the ratio is likely to be closer to the 1 forecast by Deutsche (assuming most will live independently in student housing), while if they’re all families then it will be much higher than 2.5.

Then we have to ask: what is a dwelling? Building dense student accommodation such as apartments or dorms adjacent to a university is a lot easier than constructing individual suburban houses for 530,000 people. If most new migrants were families and the government responded by incentivising the construction of a bunch of dorms or studio apartments near universities then, well, we’d still have a housing crisis!

Likewise, if all of those 180,000 new dwellings were four bedroom houses and the vast majority of migrants were students and working holiday makers, then not only would there be no crisis but house prices could actually decline despite a supposed ‘shortfall’ in housing.

A quick look at the migration data for 2021-22 suggests the following breakdown (I’ve only counted the four main streams so totals won’t add up perfectly):

  • 22.6% families
  • 13.0% skilled workers
  • 39.6% students
  • 24.7% working holiday makers

Now I fully expect those ratios to have changed in 2022-23, especially for working holiday makers, the numbers of which were quite subdued last year due to the remnants of the pandemic. But backpackers also aren’t a huge strain on the nation’s housing stock – they usually live in dorms, shared housing, or on remote farms – so if anything, a surge in working holiday makers and students should be easier to accommodate with a smaller increase in dwellings than if they were mostly families or skilled workers.

We won’t know until we see the actual data. But I’m going to go out on a limb and say that Deutsche Bank’s 350,000 estimate is almost certainly a long way off from what the actual shortfall is likely to be, even with the huge expected surge in migration as we play catch-up from the pandemic. House prices bear that out to some extent – remember that all of those migrants are already here, yet national house prices fell 0.1% in the 2022-23 financial year.