The researchers also flagged that cutting the number of migrants (especially skilled migrants) would make Australians poorer.
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If we look purely at house prices, the direct effect is relatively small. Researchers at Monash University and RMIT looked at census data from 2006, 2011 and 2016 and found a 1 per cent increase in population due to immigration leads to a smaller than proportionate increase – about 0.9 per cent – in housing prices. That means roughly one-fifth of average home price growth over that period could be traced back to immigration.
One-fifth is a big enough share of home price growth that we should care about it and that it should be open to debate.
But we should also keep in mind that in the years since, we’ve seen house prices surge in Australia during times when immigration has slowed to a trickle.
Early in the pandemic, when our borders were closed and Australian population growth stalled (and even shrank at times), house prices climbed more than 20 per cent in just over a year.
That’s because demand is determined by many things, including a growing preference for more space (the average number of people living together under one roof has shrunk since the pandemic), interest rates (record low rates during the pandemic turbocharged demand) and the incentives we put in place, including tax policy.
While boosting housing supply is key, it has grown 19 per cent over the past decade, faster than the 16 per cent growth in population, according to The Australia Institute. The issue is that through tax policy, investors have been unnecessarily encouraged to buy up properties.
Halving the capital gains tax discount from 50 per cent to 25 per cent and limiting negative gearing to investments in new rather than existing homes over five years, for instance, could reduce home prices by up to 4 per cent. Australian Council of Social Service chief executive Dr Cassandra Goldie says that’s similar to the impact of the government’s target of building 1.2 million additional homes over five years.
Given that more than 80 per cent of the benefit of the capital gains tax discount flows to the top 10 per cent of households by income, there’s very little reason we should continue to keep it at that generous level unless investors are building new homes and adding to supply.
Halving the discount gradually over five years will also give the government about $5 billion more to work with every year, too: money it could invest into more housing.
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Supply of housing – increasing it, and removing speed bumps to more development – is still key.
Researchers at the Reserve Bank have found zoning restrictions – such as minimum lot sizes and maximum building heights – contribute about 40 per cent to the price of houses in Sydney and Melbourne.
If we care about the much smaller price impact of migration, surely our tax incentives and planning laws – with their outsized impact – need to be bulldozed, or renovated, first.
The problem with fixating on cutting migration is that it comes with a big price tag.
Not only do skilled migrants pay more in taxes than they receive, and spend at local businesses and contribute as workers, but they also help lift productivity – reducing how hard we have to work – by introducing new technologies, business practices and knowledge.
Research from the OECD shows Australian regions with a higher share of migrants tend to have more productive local workers and higher wages. Essentially, slashing migration will make many Australians poorer.
If we are to curb or review the number of migrants coming to Australia, it should be focused on bringing in a higher share of those who have the skills we need to build the homes we need.
It’s not that curbing migration would have no effect: it would put some downward pressure on home prices. But using migrants as a scapegoat for the nation’s housing affordability issues is stopping us from pushing for fairer, less costly and more effective solutions.
