New report shows population growth responsible for long-term housing inflation

22 February 2023

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A new report confirms beyond doubt that rapid population growth is the main cause of Australia’s housing affordability crisis, notes Sustainable Population Australia (SPA). While interest rates and government policies influence short-term trends in house prices, it is population growth that has driven house price inflation long-term.

The research was undertaken by financial and property services companies LongView and PEXA. It showed that, over 60 years, house prices have risen on average 7% a year despite interest rates fluctuating considerably.

SPA national committee member Dr Jane O’Sullivan says the other long-term factor is concentration of population in three major cities – Sydney, Melbourne and Brisbane – compared to the US, for instance, where half the population is spread over 36 major cities.

“For the past 20 years, Australia’s population growth rate was second only to Israel within OECD countries,” says Dr O’Sullivan. “Two thirds of the growth was due to high net migration, with the majority of migrants settling in the major cities because that is where the jobs are, and often where relatives live.

“It is the land value, not the cost of building houses, that has risen. While there is plenty of land available for development on the urban fringe, it is far from jobs and services so competition is intense in older suburbs which drags up the price everywhere.

“People are forced to choose between cramped apartments in middle suburbs or social isolation at the urban fringe. Neither option will prevent population growth from making good housing in good locations ever more unaffordable. The ultimate solution lies in slowing and ending population growth. To do this we need to reduce net migration to 70,000 which was the typical level before the Big Australia experiment got underway.

“We still have natural increase (124,400 in the year ending 30 June 2022) but this will decline over time if migration were lower, since many of the current births are to young immigrant couples.”

SPA notes that the government planned for net immigration of 235,000 this year but with an unprecedented influx of students and other temporary migrants, it is likely to exceed the 2008 record of more than 300,000.

“This will have a massive impact on demand for housing right across the country,” says Dr O’Sullivan. “It will push up housing prices and tighten the rental market even more. We should be asking the federal government, are they governing for struggling Australians or for property developers?”


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