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Debunking the myth of the major political parties’ immediate success

by xyonent
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Rental Crisis.jpg

Key Takeaways

Australia’s housing crisis has become a bitter political battle that could have a major impact on the next federal election.

Prime Minister Peter Dutton kicked off his “election campaign” with populist promises to solve the housing crisis by cutting immigration to 140,000 a year and capping foreign student visas.

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

The problem is that despite there being no quick fix to the housing crisis, both the Coalition and Labor continue to pursue short-term solutions that don’t address the real problem.

Something that is easy and popular won’t help solve soaring home prices.

In my view, both the Coalition and Labor attempts to adjust housing demand by cutting immigration are misguided.

Australia’s housing crisis has become a bitter political battle that could have a major impact on the next federal election.

In my view, the fierce battle over housing will intensify and will define the next federal election as Labor, the Coalition and the Greens target the growing number of voters who believe they will never be able to own a home.

Opposition Leader Peter Dutton kicked off his “campaign” in his Budget response with a populist promise to solve the housing crisis by cutting immigration to 140,000 a year and putting a cap on foreign student visas.

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

The problem is that despite there being no quick fix to the housing crisis, both the Coalition and Labor continue to pursue short-term solutions that don’t address the real problem.

crisis

What’s easy and popular won’t solve rising house prices

Dutton’s strategy of blaming immigration for the housing problem gives the media an appealing catchphrase: “Restoring the dream of homeownership.”

But this approach ignores deeper structural problems in housing supply.

Mr Dutton proposes cutting permanent immigration from 185,000 to 140,000 over the next two years – the lowest level in 20 years.

After this period, the number will gradually increase to 150,000 and then 160,000.

He argues that by reducing demand, the Albanese Government will achieve its target of building 1.2 million homes by 2029, freeing up 100,000 homes over the next five years.

Many industry experts fear the policy, which would drastically cut immigration, could backfire altogether, exacerbating an existing shortage of 600,000 builders and craftsmen.

Of course, there are skills shortages in many other sectors too, and the situation will be exacerbated if migrants study less.

In my view, a reduction in immigration will not stop strong demand from home buyers, but it may reduce demand in the rental market as migrants tend to rent for the first few years of their stay in Australia.

There are some big demographic changes in housing demand from buyers that will keep home prices high, as we’ll explain later.

Interestingly, Australia’s housing supply is low by international standards.

According to the OECD, Australia’s housing supply level will be 420 dwellings per 1,000 people in 2022.

This lags behind peer countries such as Canada, the United States and the United Kingdom (England), which are also all below the OECD average. Number of houses per 1000 people,.

Dutton will also impose a two-year ban on foreign investors and temporary residents from buying existing property.

This is a populist answer to a problem that has been overstated.

The surge in new arrivals is partly due to a rebound in international student numbers after the pandemic halted all immigration.

Before the pandemic, net overseas migration was about 240,000 people per year.

This figure has plummeted during the pandemic and even turned negative as Australia experienced net migration.

By 2022, the numbers had normalized, then skyrocketed to 550,000 in catch-up mode.

This number seems high, but may have since been revised.

After the pandemic and subsequent recovery, Australia’s population has reached roughly the same level it would have been without the pandemic.

Moreover, the impact of Dutton’s restrictions may be limited as more than half of permanent migration applicants are already in Australia on temporary visas and already contribute to housing demand.

Also, due to existing regulations, the number of foreigners buying property here is minimal.

What about limiting the number of international students?

Peter Dutton’s proposed cap on student visas would have a significant impact on Australia’s tertiary education sector, one of its largest export industries.

With government funding withdrawn, our universities have become reliant on tuition-paying foreign students to stay financially afloat and employ the same number of faculty members as before.

Fewer international students would mean either more government funding (unlikely), local students would have to pay more, or universities would have to downsize, resulting in fewer teaching, degrees and research.

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