Cut immigration to cool the housing market

August 15, 2017 Ross Greenwood 0 Home Loans, News,

Louis Christopher from SQM Research, talks about why immigration should be cut in order to take the heat out of the housing market

Introduction – Cut Immigration to cool the housing market

Ross Greenwood: Welcome back to Money News right around Australia. Now, as you are aware, Australia’s population is growing and growing quickly. According to the Australian Bureau of Statistics, this evening, as I speak to you, Australia’s population is 24,620,981 to be precise. The question is whether that is a good thing for Australia or not. You may be aware that Dick Smith, the businessman, has launched a campaign with his own money, an advertising campaign, to try and stop the growth in Australia’s population.

Now, there is a counterargument that says that Australia’s population should continue to grow because we have an aging population and we need to import younger, working age people to provide the tax base for those people who have insufficient money, and for a government that has insufficient money long-term to pay the pensions, health care and other benefits that aging Australians require. Now, to be fair, Dick Smith says he believes that that’s a Ponzi scheme, bringing people who themselves will age.

Now, if you go further forward, you go to our own Parliament. The Department of Immigration and others do believe that if you throw your mind further forward that Australia’s population by, say, for example, 2056 will be around somewhere between 30.9 million and 42.5 million people. If you go to 2101 that the population will be 33 million and 62 million. Now, oddly enough, Dick Smith hasn’t had an awful lot of economic support around the place.

Most people say, “Grow the population because that way, you will actually take the pressure of this aging population.” Louis Christopher from SQM Research, one of the best housing researchers and economists in this country, says, “In fact, the immigration rate should be cut because that could also take the sting out of the housing market.” He’s on the line right now.

Louis, as always, thanks so much for your time on the program.

Interview – Louis Christopher, SQM Research

Louis Christopher: Good day, Ross.

Ross Greenwood: You encountered many economists who say the population, particularly the younger population, should grow via immigration because that will help take pressure off the aging of our population and allow the taxpayer base to grow at the younger age. Why do you say it should be slowed?

Louis Christopher: I’m coming from a pure housing perspective. Today, we released our monthly vacancy rates. They recorded a fall down to 2.3%. I can tell you when it comes to the rental market, Melbourne and Sydney rents are running well ahead of inflation. Melbourne’s rent rose by over 5% in the last 12 months. Sydney has risen by about 2.5%, 2.9%. Rents are rising quicker than inflation. This is despite the Reserve Bank of Australia, four months ago, saying, “There’s going to be an oversupply in Sydney and Melbourne.”

That hasn’t materialized. The reason why I believe that is the case is because of excessive population growth in those two cities in particular. I think the population growth of Sydney and Melbourne has been driving up rents. It’s been driving up prices. I think one of the ways we can address this, because it is an affordability issue in these two cities, is periodically cutting immigration. I think that that would provide some respite upon affordability in those two housing markets.

Ross Greenwood: Could another alternative, Louis, be to say to immigrants coming to Australia, “You’re allowed to come to Australia on the proviso that you do not live in these post codes.”? In other words, we’re going to monitor where you’re living. We’re going to monitor your activities. Basically, you are not allowed to live in the greater metropolitan area of Sydney or Melbourne. You can go to Brisbane. You can go to Perth. You can go to Adelaide. You can do the country. You can go to Townsville. You can go anywhere you like. You can go to Darwin, but you cannot go these places. That way, you start to actually put the population growth away from those two major cities and you redirect it to other regional and rural areas.

Louis Christopher: I’ve got no issue with that. I think that’s a great idea. I would say right now, how are we actually going to be able to enforce it? How are we going to properly monitor that? I think there’s some real issues in terms of the actual execution of that concept. I’m all for that we grow our regional townships. I’ve been on the record for that for quite some time. I think here and now though, we’ve got a bit of an issue. For those living in Sydney and Melbourne, it’s not just housing or portability. We’re behind on infrastructure. We’re behind on our schools. We’re behind on our hospitals that there are some serious issues here.

What I’m discussing is about a periodical cut in migration, which would help maybe just for one or two years or three years. I think that would alleviate some of the issues here. It’s not, by all means, the only solution, but it would certainly help. I do agree of that notion. If we could divert the migration to other cities that would help, I think there could be some issues here regarding enforcement of that.

Ross Greenwood: In that regard, there’s also another aspect of this because infrastructure comes into this. We know infrastructure is one of the really big keys in terms of just the way in which housing is developed. Because, ultimately, if you don’t get the infrastructure in the right place at the right time and you don’t get the housing stock in the right place at the right time, then fundamentally, there’s a significant problem in terms of trying to have the sense of well-being and the jobs and all those types of things for immigrants and indeed for others who are trying to afford housing.

Louis Christopher: Oh, absolutely. Timing all of this is a very difficult job indeed. When we look back at it, more often than not, we’ve got the timing wrong. I agree with that statement.

Ross Greenwood: When you say that there is a rise in rents which is above inflation, likely because of the population going in there, to me, I also say, what about all of the empty houses that are out there? The lack of housing, let’s take it up for a rental accommodation, is another aspect of this that needs to be taken into consideration.

Louis Christopher: Yes. There has been attempts recently to draw out the risk factors being additional factors on the stakeholders like holiday homes or vacant homes, where owners are just leaving their properties unoccupied, but there’s been an attempt to address that. Once again, our issues in terms of monitoring and enforcement of all that, but I think we’re slowly getting there. It’s a difficult one there. It gets to the point of telling private owners what to do with their houses. We’ve got to be careful of that as well. Look, there is a number of ways of addressing this. I think migration and managing migration is definitely one path which we’ll consider.

Ross Greenwood: Tell me broadly the property markets in those capital cities. You’ve looked at them for some period of time. What you’re telling me now, if rents are rising, that means that there’s a shortage of accommodation. If that’s the case, it may be some of the quest to actually take the sting out of the housing market is meeting a lack of building. If that’s the case, you’re actually making the problem worse long-term.

Louis Christopher: That’s right. Let’s recall, of course, we have had, in the last few years, quite a significant increase in the number of completions for houses in both Sydney and Melbourne. Despite that rather dramatic increase, we still haven’t built enough for the surging population. That’s the reality that we face today.

Ross Greenwood: I tell you what, always good to have you in the program.

Louis Christopher, as I say, one of the really good property researchers in this country, SQM Research. He’s arguing now that the population growth rate should be slowed by reducing immigration at least short-term to whoever comes, some of the shortfalls in housing around the country right now. Take your calls on that one, 131-873. Coming up next, we’re going to talk stock market with Roger Montgomery.