Whether immigrants fuel inflation is a complicated question, in part because there’s no single, uniform “immigrant”. Immigrants can be students, skilled workers, entire families, refugees, retirees, or backpackers. Their ages also vary, as do their consumption, savings, and working patterns. Each of those features, and how they all come together in aggregate, will affect the role immigration plays on supply, demand and ultimately, prices.
When you create a system that makes it costly to do things ‘by the book’ – common examples are drugs, guns and more recently, building houses – you alter the incentives that individuals face in their day-to-day lives. In the case of housing, strict planning and zoning laws create positive transaction costs, raise the price of houses, and increase the payoffs for criminality.
Denmark has a housing problem. Not Denmark the country, but Denmark Western Australia – population 2,375 – which happens to be the least affordable town in the state and ‘one of the most inefficient communities in WA when it comes to the balance between large family homes and smaller dwellings, with a ratio of 1.22 bedrooms per resident’.
Who has fared the worst from the recent bout of inflation and ongoing cost of living crisis? It’s not who you might think from reading headline after headline about Australia’s rental crisis: “On average, households with a mortgage have experienced a significant decline in spare cash flows, unlike other households.
The merchants of fear were out to get their clicks again on the weekend, jumping on the inevitable post-pandemic surge in migration to crack a headline: “Monthly long-term arrivals and departures data released by the ABS suggests that net overseas migration (NOM) has surged even higher, with around 500,000 net migrants expected to have arrived in Australia over the 2022-23 financial year.
Australia has a housing problem: we simply haven’t built enough of them to accommodate our growing population, which the government estimates will continue to increase from around 26.5 million to 40.5 million by 2050. All else equal, that means we need about 50% more housing than we have today, and the old strategy of simply building out forever just won’t cut it.
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.
National Cabinet – where Australia’s States and federal government get together to try to agree on national policy – reached an agreement this week to: “Build 1.2 million homes over 5 years. A better deal for renters. Planning reforms." Here’s a link to the full policy reveal, which explains that the 1.
Fertility rates in the developed world are currently at around 1.6 births per woman, well below the replacement rate of 2.1 (assuming no migration). There are many causes, but work by the United Nations suggests that the decline is primarily due to “the increasing control that individuals – particularly women – are able to exercise over their reproductive lives”.
Ah, Vienna. According to The Economist, the small central European city – it has an urban population of around 2 million – is, for the second straight year, the world’s most liveable city. Understandably, that warrants investigation: what is Vienna doing so well, and can we replicate it elsewhere? Enter the NYT, which last month described Vienna as a “renters' utopia”:
The United States is a quirky place, and its mortgage industry is no exception. Instead of borrowing at variable rates like we do Down Under, when you take out a mortgage in the good ol' US of A you’re generally locking in the rate for 15 or 30 years. Now banks borrow short and lend long – how on Earth do they manage the enormous risk of maturity mismatch that this model entails?
There is no doubt that Australia has plenty of problems. Inflation is still running hot, rental properties are expensive and ridiculously hard to find, and profits for some companies – especially those in the mining sector – are, or at least were recently, at/close to record highs. Meanwhile, real wages are declining and the nation’s productivity over the last decade (the key driver of long-run real wages growth) was at a 60-year low.
Last week around 500 residents of the small town of Dunsborough in Western Australia turned out to a rally protesting against affordable housing: “Several high-rise retail and housing projects are being developed in the town after receiving initial approval from the local council…
The Greens Member for Griffith, Max Chandler-Mather, took to Twitter to explain to people why “building luxury apartment towers makes the housing crisis worse”. According to Max: “Every time valuable inner city land is handed over to luxury property developers we lose another opportunity to build good medium density public and affordable housing.
The Australian government wants to create affordable housing. An admirable goal, although the means leave a lot to be desired: “The $10 billion Housing Australia Future Fund will provide ongoing investment returns to deliver new social and affordable homes as well as investments to address acute housing needs. Returns from the fund will deliver the Government’s commitment of 30,000 new social and affordable homes in the fund’s first five years, including 4,000 homes for women and children impacted by family and domestic violence or older women at risk of homelessness.
In March 2020, the Reserve Bank of Australia (RBA) created the $200 billion Term Funding Facility (TFF), essentially a slush fund for banks that locked-in three-years' worth of funding at rates well below what was available on global wholesale markets. Given the uncertain times, one could mount an argument for its creation – COVID-19 had just started to be taken seriously and the RBA was concerned about Armageddon.