Australia's rental crisis is permanent

Summary

In a compelling conversation with economist Leith Van Onselin, the intricate and enduring nature of Australia's rental crisis is unpacked. Driven by exponential population growth and a stagnant housing supply, rents are skyrocketing. Despite hopes for improvement, insights from experts suggest the crisis could persist for 15 years. Contributing factors include government immigration policies, inadequate construction, and political motivations. This persistent crisis reflects broader economic challenges, revealing a concerning disparity in per capita income growth compared to global counterparts. The dialogue underscores a looming housing dilemma that Australian policymakers must urgently address.

Highlights

• A top economist sheds light on why Australia's rental crisis may be far from over, predicting a 15-year struggle. 🌟
• Rising rents have forced tenants to spend record shares of their income on housing. 💸
• Population growth and low housing construction rates are exacerbating the rental shortage. 🏗️
• Immigration policies add fuel to the rental crisis, tying into political strategies. 🔥
• Australia's economic growth favors aggregate numbers over genuine per capita wealth, highlighting an income trap. 📊

Key Takeaways

• Australia's rental crisis is predicted to last up to 15 years due to a supply-demand mismatch. 📈
• Massive population growth with inadequate housing supply is the core issue driving the crisis. 🏠
• Government policies on immigration are exacerbating housing demand and rental shortages. 🛑
• Political dynamics suggest that increasing population growth might influence election outcomes. 🗳️
• Australia's real per capita income growth is among the lowest globally, impacting overall living standards. 📉

Overview

The Australian rental market is in turmoil, caught in a tight bind between soaring demand and sluggish supply. Leith Van Onselin shares startling insights into how policies and economic trends have spiraled into a full-blown housing crisis that might linger for as long as 15 years. This situation is not just a blip; it’s a complex jigsaw where every piece seems to support the trajectory of a long-term struggle.

Core issues fueling the fire include rampant population growth and an anemic pace of homebuilding. As the government continues to welcome large numbers of new residents without matching this growth with housing developments, vacancy rates plummet to historic lows. Vacancy rates hover around 1%, underscoring the severity of supply constraints blinding policymaking responses to a looming housing emergency.

Adding another layer of complexity, there’s a growing narrative that points to population increases as a tool for political leverage. With migration trends suggesting a potential increase in voter base favoring current government policies, systemic solutions seem elusive. Additionally, Australia's international ranking on income growth portrays a grim picture, where on a per capita basis, income growth lags significantly behind, pointing towards a broader economic bottleneck impacting renters nationwide.

Chapters

• 00:00 - 00:30: Introduction and Overview The chapter "Introduction and Overview" begins with a discussion between the host and economist Leath Van Onselin, a co-founder of macrobusiness.com.au, which is a key source for finance news. The main topic for this week's discussion is rental affordability and the hope for improvement in this area. The conversation touches on the pressure caused by the increase in population, which is described as irresponsible.
• 00:30 - 01:00: Rental Affordability and Housing Supply The chapter discusses the worsening rental affordability and housing supply issues over the past two years in Australia. It mentions the challenges faced in building new homes, whether they are apartment blocks or houses. An expert, Tim Gerner, quoted in Finn Review, suggests that the situation could remain the same for up to 15 years, highlighting the severity of the problem. According to Kotality, rental affordability has reached unprecedented lows.
• 01:00 - 01:30: Tim Gerner's Prediction on Rental Crisis Duration Tenants are facing record high rents, with a 50% increase since the pandemic.
• 01:30 - 02:00: Challenges in Housing Supply and Population Growth The chapter 'Challenges in Housing Supply and Population Growth' discusses the imminent rental crisis predicted to last up to 15 years due to low rental vacancy rates across all states, which sit at around 1%. The construction supply is at its lowest point in a decade, while population growth is at an all-time high, indicating a significant housing supply shortage. Tim Gerner describes the situation as a straightforward mathematical issue, with the greatest demand/undersupply imbalance seen in history.
• 02:00 - 02:30: Impact of Migration on Rental Demand The chapter discusses the significant impact of migration on rental demand, highlighting the challenges faced due to continuous population growth. The narrator explains the imbalance between the inability to build enough homes and the federal government's role in increasing demand by allowing hundreds of thousands of people to enter the country yearly. This influx boosts rental demand, decreases vacancy rates, and perpetuates a rental crisis. Additionally, recent data on permanent and long-term migration is mentioned as worsening the situation.
• 02:30 - 03:00: Net Overseas Migration and Population Growth The chapter titled 'Net Overseas Migration and Population Growth' discusses the data on arrivals and departures in Australia as provided by the Australian Bureau of Statistics (ABS).
• 03:00 - 03:30: Government's Role in Housing Crisis The chapter discusses recent migration trends in Australia, highlighting a significant increase in net permanent and long-term arrivals in the first quarter of the year, approaching record highs. The influx of about 188,000 people marks only a slight decrease from the peak in the previous year, suggesting that migration is on the rise again after a slight decline at the end of last year. Additionally, recent labor force data from the Australian Bureau of Statistics indicates an acceleration in the growth of the civilian population, impacting housing and economic sectors.
• 03:30 - 04:00: Political Implications of Immigration Policies The chapter discusses the political implications of Australia's immigration policies on housing and rental markets. As population growth increases, driven by immigration, the country faces a supply-constrained housing market. This imbalance exacerbates the rental crisis, as housing infrastructure cannot keep pace with rapid population growth. The chapter emphasizes the lack of planning and foresight in addressing the housing needs of a growing population, highlighting the ongoing struggle to balance immigration with available housing stock.
• 04:00 - 04:30: Post-2022 Election Survey and Its Implications The chapter discusses the continuous housing crisis that is exacerbated by governmental policies. It critiques the federal government's role in perpetually failing to provide adequate housing solutions. Additionally, the chapter touches upon post-2022 election surveys, implying potential conspiracies or overlooked insights within these surveys.
• 04:30 - 05:00: Labor's Incentive to Maintain High Immigration The chapter discusses the political strategy behind maintaining high immigration levels, focusing particularly on the Australian federal government's incentives. It opens with a reference to the pre-election activities of political figures, like 'old mate Burko', who engage in roadshows to garner support. The discussion highlights evidence from a post-2022 election survey conducted by the Carnegi Endowment, which revealed that 58% of respondents believed population growth correlates with increased support for the ruling federal government. This suggests that higher immigration could potentially benefit political entities aiming to consolidate their power.
• 05:00 - 05:30: Economic Impact on Renters The chapter discusses the political tendencies of the Indian community in Australia, highlighting that a significant majority, 66%, votes for the Labor party compared to 34% for the Coalition. It points out that the Indian community is currently the largest source of immigration in Australia. The implication is that this demographic's voting pattern could influence political outcomes, as observed after the Labor party's electoral victory.
• 05:30 - 06:00: Q4 National Accounts Release The chapter titled 'Q4 National Accounts Release' discusses the reactions and implications of Labour Party's election victory in terms of immigration policies in Australia. It highlights the excitement among Indian students and migration agents, as seen on social media platforms like TikTok, Twitter, and YouTube. The chapter suggests that Labour’s win signals a softer approach to immigration, reducing the likelihood of immigration cuts and potentially increasing international student numbers. This suggests that the Labour government is incentivized to uphold a high immigration policy.
• 06:00 - 06:30: Decline in Household Disposable Income The chapter discusses the political strategy of importing future voters through immigration. It suggests that although immigrants can't vote immediately, they are more likely to support the Labor party in the long term once they become citizens. The chapter highlights how this strategy benefits Labor and points out that the coalition party might be disadvantaging itself through immigration policies.
• 06:30 - 07:00: OECD Comparison of Household Income This chapter discusses the historical political strategies in Australia regarding immigration and its impact on society, particularly focusing on a coalition government over the past 20 years. It highlights how the high rate of immigration was politically motivated, ostensibly to garner votes for the Labor party. However, this strategy backfired, inadvertently creating issues for local renters due to increased demand in the housing market. The chapter also briefly touches on economic indicators, mentioning the quarter 4 national accounts release, suggesting a shift to discuss economic performance in subsequent sections.
• 07:00 - 07:30: Long-term Household Income Growth The chapter discusses the decline of real per capita household disposable income in Australia, citing the largest recorded decrease. It notes an 8% reduction in household incomes from their peak in mid-2022, as per the Q4 national accounts released in March. Further Q1 data is anticipated soon.
• 07:30 - 08:00: Conclusion and Future Outlook This chapter discusses household disposable income, which refers to real wages adjusted for mortgage payments and taxes, essentially representing household spending power. It highlights recent data from the OECD, revealing that Australia experienced the largest decline in real per capita household spending among developed countries last year, with only Finland also showing a decline, albeit smaller.

Australia's rental crisis is permanent Transcription

• 00:00 - 00:30 As you know, each week we catch up with economist, one of the co-founders of macrobusiness.com.au. It's where we get our finance news from, Leath Van Onselin. macrobusiness.com.au. I'll say it again. I'm delighted to say he's on the line. Now, this week we're going to talk about rental affordability. And you know, you'd like to think that things might just turn. And we talk about the pressure that's been brought by the uh irresponsible increase in population
• 00:30 - 01:00 over the last 2 years and of course the inability to build uh new homes whether they be an apartment block or a house. Um but you you know we I think we had some hope that this would turn around but uh you've quoted an expert Tim Gerner who was in the Finn Review saying it could be like this for 15 years. Yeah, it's it's it's you know pretty alarming stuff really. So, as you know, rental affordability has never been worse in Australia. So, you know, according to according to Kotality,
• 01:00 - 01:30 which is formerly Core Logic, um tenants are are required to sacrifice a record share of their income to rent the median home. And this follows, you know, roughly 50% increase in asking rents since the since the pandemic. And you know, this week in the AFR, uh, leading apartment developer Tim Gerner, uh, he warned that Australia's rental crisis could last for another 15 years due to a lack of supply relative to the nation's strong population growth. Now, Gerner said that even if the government came out tomorrow and changed all the planning rules, changed all the capital
• 01:30 - 02:00 and debt rules, we still got another, you know, up to 15 years worth of rental crisis coming. And he said that we got vacancy rates, rental vacancy rates of around 1% in every single state. We got the lowest cons, you know, construction supplies running at uh, you know, roughly decade lows. At the same time, population growth is higher than it's ever been. So, you know, according to Tim Gerner, it's very simple mathematics. We've got a huge the biggest under supply in history. That's what he said. With the highest demand in
• 02:00 - 02:30 history with population growth still growing. So, you know, this isn't rocket science here, Luke. We've got we we can't build enough homes. I say it every week. Yet, we've got the federal government fire hosing in demand with, you know, hundreds of thousands of extra people every single year, pushing up demand for rentals, pushing vacancy rates down, and just creating this perpetual uh rental crisis. Now, just to add more insult to injury, this week we got the latest permanent and long-term
• 02:30 - 03:00 arrivals data from the ABS arrivals and departures data. Now, that that is basically a proxy for net overseas migration. So, the the Australian Bureau of Statistic has the quarterly net overseas migration numbers which are only current to September last year. They they're very lagged. They always run about 6 months behind. But they've also got the monthly permanent long-term arrivals and departures data which comes out as I said monthly. it's a lot more regular and they track very closely and what they showed is that net overseas migration looks to have rebounded back
• 03:00 - 03:30 towards you know close to a record high again at the start of this year. So over the first quarter of this year 188,000 net permanent and long-term arrivals landed in Australia and that was only uh you know about 7,000 less than the absolute peak in the first quarter of last year. So it looked like migration was coming down at the end of last year. It's now looks like it's picked back up again. And on Thursday, we got the labor force release from the ABS and that showed that the growth in the civilian population also accelerated over the
• 03:30 - 04:00 first four months of this this year. So basically, you know, as as Tim Ger has said, we've got population growth ramping back up again into a supply constrained market, which just means that the rental crisis is just going to, you know, potentially take another leg down for the worse. So it's none of this is rocket science. We know it. I say it every every week just about that. the the whole housing equation in Australia just does not add up. We're just fire hosing in more and more people every year. We can't build enough houses
• 04:00 - 04:30 homes. We never have been able to build enough homes and and and and the government seems to wonder why we have have this, you know, perpetual crisis and it's all been it's it's primarily been driven by the federal government. So there there is that argument that you get the false growth that comes with more people paying more tax, more demand, all that area. But there's uh there's also been some election surveys. took a lot of and this is um potentially conspiratorial um and we had this in the
• 04:30 - 05:00 leadup to the last election where old mate Burko was doing the traveling uh come and vote in Australia and make sure you vote for me in Australia road show. Is is there anything is there any evidence suggesting that population growth leads to higher support for the for the now federal government? Yeah, unfortunately there is. So, so there was a post 2022 election survey done by the Carnegi Endowment and that showed that 58% of
• 05:00 - 05:30 the Indian community uh votes for labor versus 34% for the coalition. So what that would suggest is that um you know and and the Indian community is now our largest immigration source. So the the single single the single biggest source of Australia's immigration now is from India. And it seems that that community votes overwhelmingly for Labor. And we did see after Labour won the election that there was, you know, oodles of
• 05:30 - 06:00 videos across Tik Tok and, you know, Twitter or X, whatever you want to call it, and all these other areas, YouTube, etc., of Indian students, migration agents celebrating wildly Labour's election victory because they know that the Albanese government's a bit of a soft touch in immigration. And obviously with Labour being reelected, it lessens the chance of immigration cuts. it means more international students all that sort of stuff. So that committee was obviously celebrating and therefore I think the incent lab Labor is incentivized to maintain a high immigration policy because it's
• 06:00 - 06:30 effectively importing future voters. Now obviously if someone comes over here on temporary visa or whatever they can't um they can't vote straight away. They got to wait you know think they have to be in the country for like 3 years or something to before they and then become obviously citizen then vote. But even so, their Labor is incentivized to grow its voting base by importing a whole bunch of people from overseas who are more likely to vote for Labor. And it also shows you, Luke, that the coalition has basically shot themselves in the foot because much of this immigration
• 06:30 - 07:00 that we've had over the last, you know, 20 years arrived under the form of coalition government and they effectively imported a whole bunch of people who were then more likely to vote for Labor. So, they effectively shot themselves in the foot. They probably did it inadvertently, but um you know either way, one way or another, this very high immigration that has been run is terrible news for Australian renters. That that that's basically what it comes back to. Yeah. Now, the quarter 4 national accounts release, what's that
• 07:00 - 07:30 done in relation to uh households and the per capita household decline in in wealth? Cuz that's significant, isn't it? Yeah, it is. So, so, so the Q4 national accounts came out in March and we've got the Q1 uh for this year coming out early next month. But what the Q4 national account showed was that Australia had suffered the largest decline in their real per capita household disposal income on record. So, household incomes have fallen 8% from the mid 2022 peak. And and what
• 07:30 - 08:00 household disposable income is, it's basically your real wages um adjusted for mortgage payments and rises in taxes. So it's basically what households take at the end of the day, what what their spending power is. And new data was released this week from the OECD to show that Australia recorded the largest decline in real per capita household spin in the developed world last year. So we had the biggest decline. The only other OECD nation that that that experienced a fall um but less than us was Finland. And here's the thing.
• 08:00 - 08:30 Australia's real per capita household disposable income has risen by just.1% since the end of 2019. And that compares to a 9.3% rise across the OECD as a whole. And Australia again has been worse than any every other English speaking nation. And one one last cherry on top here, Luke, to um a pretty rancid cherry. Um, Australia's household disposal income per capita since 2007, since the start of 2007, which is far as the OECD data goes back, has been
• 08:30 - 09:00 massively below the OECD average. So, since Q1 uh 2007, so you know, just uh uh before the global financial crisis, Australia's household disposal income per cap has only grown by 18%. Whereas across the OECD, which is all the 32 or whatever it is, developed nations, they've experienced a 27% increase. So we've grown by 18%, the OEC average is 27%. And this basically tells you that Australia's had this long protracted
• 09:00 - 09:30 period of very poor income growth if you're for households. And it's sort of this um this notion that we've been at least for the last, you know, decade um we've basically experienced a lost decade in in gains in our living standards. And unfortunately, Australia's labor productivity is amongst the poorest in the world. And so the chances are that our growth in household incomes is going to remain really poor going forward. So that we're
• 09:30 - 10:00 sort of stuck in this, you know, income trap at the moment whereby we've got a very poor growth, low productivity economy. It's been held up just by bringing in loads of people, which makes the headline look good, but per capita we're going nowhere. Yeah, great analysis, mate. Thank you so much. I'll talk to you next week. Yeah, thanks Luke. Speak next time. Good on you, Le Vanelin. Macrobus.com.auu.