Housing

Dick Smith wants to cap Australia's population at 30 million over concerns about a lack of resources and housing costs. In doing so he falls for the 'lump of labour' fallacy, and fails Econ 101: it's poor planning, not immigrants, that erodes housing affordability in Australia.

NSW, WA and SA have all announced steps that will increase housing supply. But to improve housing affordability for good, we need to ensure it's politically sustainable. That means communicating with locals and lifting density across entire cities, not just in 'well-located' areas.

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.

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:

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. Believe it or not, some cities are actually getting less dense:

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:

National Cabinet – where Australia’s States and federal government get together to try to agree on national policy – reached an agreement this week to: