Markets, not migrants, broke Australia’s housing system

24 June 2023
Omar Hassan

It’s universally acknowledged that Australia is in an epic housing crisis.

Rental prices in capital cities have jumped by an average of 12 percent, or $3,200, in a year—the biggest increase since records have been kept. Vacancy rates are at all-time lows, forcing applicants into costly bidding wars over crumbling properties. For those who scrimp and save for the privilege of mortgaging their souls to a bank, things aren’t much better. The average household is now spending more than 42 percent of its weekly income to service a new loan—nearly half their income to keep a roof over their heads.

In a move that shocked nobody, the Queensland cop-turned-Liberal leader Peter Dutton has decided that newly arrived migrants are to blame. His goal is to deflect anger at inflation and housing costs onto the government’s allegedly “massive” increase in immigration. The idea that we’ve living through the “biggest migration surge in our country’s history” was first floated in his budget reply speech. It has since been reiterated by a range of Liberal Party spokespeople. Though Dutton is careful with his words, the clear implication is that immigration is the source of the crisis in housing, health care and other public services.

This toxic intervention had an immediate impact. Days after Dutton’s speech, neo-Nazis were inspired to organise an anti-immigration protest in Melbourne. Not to be outdone, libertarian tech CEO Matt Barrie hysterically denounced the arrival of a “Canberra-sized armada” on Australian shores just a few days later.

The argument’s logic can, for many people, seem intuitively correct: there is clearly not enough housing currently available on the market, city traffic is terrible, and life is generally getting harder. So why add to the number of people competing for already scarce living space?

At least one poll suggests that a majority, 60 percent, of people agree that there should be a pause on immigration until Australia’s infrastructure build deals with existing shortages. That the poll was commissioned by the hard right Institute of Public Affairs could give the data a certain bias, but, regardless, there is a very big group of people who think that way.

But the argument doesn’t stack up.

First, new migrants represent a small fraction of the demand for urban resources. Australia’s net annual immigration in 2022—that is, arrivals minus departures—was 387,000 people. Just over half of them settled in Melbourne and Sydney, which is about 100,000 each, or roughly 2 percent of each city’s roughly 5 million population. It’s hardly earth-shattering growth.

As well, despite Dutton’s alarmist rhetoric, current migration numbers are far from exceptional. Migration is currently adding about 1.5 percent to Australia’s population each year, which is less than was recorded at any point between 1948 and 1973. To reach the same proportion as in those years—2.2 percent growth—net migration would need to rise to nearly 600,000 a year and continue rising in absolute terms for two decades.

If migration were a key factor undermining working-class living standards, then the postwar years should have been an era of suffering and sorrow. But living standards grew strongly throughout the period. Many state governments implemented rent controls that lasted into the 1960s. Prime Minister Ben Chifley even experimented with a national price freeze.

There’s no reason why such measures, or something far better, couldn’t be implemented today. There would be plenty of housing and work for all comers. In the absence of proper planning and state investment to get everyone housed, migrants are an easy scapegoat. But we need to keep our eyes on the people who are really to blame for our housing misery: the rich.

Take the disgrace that is “negative gearing”, a measure that allows property investors to write off extraordinary amounts of tax against the “cost” of owning a second, third or twentieth house. The richer you are and the more properties you have, the more tax you can write off. Yet Labor has refused to get rid of this handout. Nor is it planning to abolish the other tax break: a 50 percent discount on the tax paid on profits from investor property sales.

The combined cost of these two tax deductions was recently estimated by the Parliamentary Budget Office to reach $157 billion over the next decade. This means that Labor is planning to spend more on tax credits for wealthy investors than it will on building new houses.

Nor is Labor proposing to limit the number of houses that can be owned by the same investor. The most recent Tax Office data shows that just 2.5 percent of people own more than one investment property—but combined, that 2.5 percent possess more than 1.6 million homes, not counting the one they live in. Who are these people reaping the rewards of the government’s huge tax breaks? Surgeons, CEOs, military generals and others with high incomes.

A ban on individuals owning more than one residential property would result in well over 3 million dwellings being made available. At the very least, you could start by targeting the 16 percent of all investment properties in Melbourne that are left empty, according to the most recent Speculative Vacancies report by Prosper Australia. Turn those into public housing via compulsory acquisition, and the government could quickly turn the housing crisis around.

Speaking of which, the long-term decline in government spending on public housing is one of the biggest factors contributing to the current crisis. There has been a near terminal decline in public housing stock, with most of it being sold to developers or NGOs. A 2011 report by the Australian Housing and Urban Research Institute also found a steady decline in public housing builds over time. In 1970, governments built more than 17,000 public housing units, when Australia’s population was half of what it is today. In 2022, there were just 4,000 built, a figure broadly unchanged for the last twenty years.

This has added to the upward pressure on house prices by eliminating a low-cost option for working-class families. It has also put great strain on the remnants of the public system, transforming it into a form of welfare available only to society’s most desperate and vulnerable people.

The demolition of the public housing system has been a bipartisan government choice. But even when private developers are relied on to build our homes, there are better ways of doing things. In many countries, mandatory inclusionary zoning requires every new development to hand over a certain proportion of the dwellings to public or social housing providers, or to pay an equivalent levy. This ensures that public or affordable housing stocks keep up. It costs the government nothing.

Yet here in the so-called lucky country, state governments let developers build whatever they want, wherever they want, and charge whatever they want. In 2018, Victorian Labor floated a woefully inadequate 1.75 percent levy on new builds but withdrew it within two weeks after developers chucked a hissy fit.

Along with abysmal building standards, these policies ensure that the housing that does get built is expensive, inefficient and of poor quality. In recent decades, scores of new suburbs have been created on capital city outskirts, usually miserable places with delightful sounding names. Sure, the buyers couldn’t expect public transport, libraries, shops, health services, decent transit roads or other such trivialities. But if they closed their eyes really tight, they could almost pretend they were living the Australian dream.

Even the developers are starting to suffer. The residential construction industry is recording record levels of bankruptcies. The housing boom was premised on cheap money, so the Reserve Bank’s decision to jack up interest rates by 4 percent has made the old model unworkable. New building approvals have now dropped to an 11-year low, driven by price uncertainty as well as higher credit and material costs for builders.

At the very moment that Australia needs more housing, the capitalists—and the governments that serve them—are reducing the number of new builds. So it’s the market, not immigration levels, that is locking in shortages and higher prices for years to come.

Given the scale of the crisis, Labor has been forced to respond. But its “solutions” aren’t worth the paper they’re written on. The $10 billion housing fund is a case in point. Its own best-case scenario predicts an extra 2,000 homes a year over the next decade. Tone Wheeler, president of the Australian Architectural Association, suggests the figure needs to be closer to 50,000. In a rare show of defiance, the Greens have rightly insisted on more substantial measures, but Labor remains unmoved, announcing a separate “social housing accelerator” agreement with the states worth a paltry $2 billion.

Everything that passes for a housing policy basically amounts to giving handouts to private developers anyway. Federal Treasurer Jim Chalmers is providing tax cuts to get institutional investors to build more apartments. Victoria’s Dan Andrews is proposing to take development decisions out of the hands of local councils to fast-track approvals. That’s code for helping developers to bypass the pitiful minimum standards that already exist.

The idea of replacing stamp duty with a flat land tax has also been floated by figures on both sides of politics. A move in this direction would devastate working-class people who, through no fault of their own, happen to live in areas where house prices have skyrocketed. A tax on the current value of their properties is designed to force them out of their homes and communities to make way for gentrifiers.

It should be obvious by now that Labor’s developer-friendly measures will not address the housing crisis. If the situation continues, there is every reason to expect the right wing to continue raising immigration as a means of deflecting from the real causes of the current mess.

We need a total transformation in the way that housing is provided. The current system allows a tiny minority to enrich itself while the majority are locked into a lifetime of stress and insecurity. This needs to be scrapped in favour of a model that views public housing as a social good that should be guaranteed for all.

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