How is immigration affecting the rental market?

Sascha: [00:00:03] I'm Sascha Kelly and welcome to the Dive, the podcast that asks whoever said the business news needs to be all business. Look, we're not breaking new news for you today. We're talking about the tight rental market. Anyone who's out there on real estate dot com knows it's slim pickings right now. And we also know that we as Australians, we're just obsessed with a property story. It's been hard to avoid the resounding chorus of news reports about this housing crisis. 

Audio Clip: [00:00:32] Sydney's rental market has gone from bad to worse, with prices continuing to soar, crisis is hitting Family After family. Getting so bad in some areas that local families are being forced to move into caravan parks and campgrounds. 

Sascha: [00:00:47] In fact, we did an episode about this very topic at the beginning of the year and forecast this very situation that it was going to get a lot worse before there was any sense of relief. But lately there's been headlines linking to another suspected cause of the rental crisis, attributing the record number of immigrants now entering the country. And whenever we have a macroeconomic question here, Equity Mates, we turn to our resident economist, Thomas, who's one half of comedian versus economist. It's Wednesday, the 19th of April. And today I want to know what impact will these forecast immigration numbers have on our already strained housing supply? Thomas, You have a special focus on property economics and you've always got an opinion. So I'm really excited to dig into this one with you today. I'm just going to lay the scene a little bit, give a bit of context. Advertise rents have galloped 11.5% higher in the year to march, according to call logic. This one really scare me. Vacancy rate is only 0.9%, which is about half the level of a year earlier at 1.7%. And from what I've been reading, the rule of thumb is that a healthy rental market should be at 3%. All these things sound bad, but can you give me an expert's perspective on this? Is this a true meaning of a crisis? 

Thomas: [00:02:07] Yeah, I mean, the crisis has no strict definition, which is part of the problem. But I think you can we can definitely say that this is the worst rental market in recorded history, probably in the nation's history. Like, I don't know, maybe there weren't very many houses at the time of first settlement, but it's bad luck. It's net the data has never been this bad and that that vacancy rate is a record low. It's incredibly tight and it's is probably worse because historically, when the cities have been tight, the regions have been available and people can sort of move down as they're like, okay, I can't do Sydney, but I'll go to Newcastle. The regions are tight as well. So this sort of the tight rental vacancy rate story is nationwide and you can't escape it. And so that's what makes it, I think, particularly dire. 

Sascha: [00:02:54] And there's a number of factors at play too, because there's the supply of short term housing, there's insufficient housing development and there's builders going bankrupt. Can you give me some insight into all the factors that are actually making up this crisis? 

Thomas: [00:03:10] I mean, I think I think in terms of I think the short term lending is definitely a story, but that is that is reasonably slow and reasonably slowly evolving and has sort of been on the radar for a while. The construction crisis, that is also a story we had. We had a strong ramp up in construction and that's been followed by a bit of a hole in approvals. But the construction activity is still quite strong at the moment. So maybe in sort of 18 months to two years we might see a downturn in construction. But for the moment that's not feeding into the problem. And you look at like the calendar year 2022, housing construction, dwelling construction was around normal back. It's not massively difference is not it's not going to be causing this story. So I think the two things that have really driven the rental crisis are on the demand side. The first is the kind of the reduction in average household size that we saw pre-COVID. So people spread out a bit more. The number of people per dwelling fell slightly, but enough to create extra demand for houses. And then the second factor factor is strong immigration. And immigration. Since, you know, had the borders lockdown during COVID and then has bounced back very strongly. 

Sascha: [00:04:20] Yeah. The AFR reported that the Treasury forecasts an influx of 650,000 migrants between this financial year and next. What is the usual kind of standard for immigration numbers and why are we seeing these record highs in both? 

Thomas: [00:04:37] It's a very interesting question. Sort of the political narrative is it's about a catch up that we needed to catch up for all the lost migrants that we had through Covid this sort of what that means is, is a B, I don't fully understand, but that's the sort of the narrative that's that's being pushed. And then what is normal is really there's no real way to do that other than to look at historical averages. And so. You go back to nine. Since 1901, the average is about 80,000. Probably sort of up to around, you know, it was in the 100 to 200000 range, between 20 to the turn of the millennium in 2020. And then sort of stepped up, you know, quite strongly since then, the last few years. So what is normal is there's nothing to say. And the interesting thing about the immigration numbers for me is that they're decided by the Treasury. So it's not the Department of Immigration and it's not the Department of Housing, even though that doesn't exist and is probably needed.

Sascha: [00:05:34] Can I ask why that is? Why does the Treasury decide those numbers? 

Thomas: [00:05:38] That is an excellent question. That is a very excellent question. And I think I think the answer is that we've seen immigration as a as an economic policy lever, that when we look into the forecasts and we think things are slowing. Immigration is an easy way to push up the aggregate GDP numbers. 

Sascha: [00:05:56] I'm just coming in to interrupt and say I'm going to be back with Thomas from comedian versus economist in just a minute. And we're going to talk about how this is going to impact our already strained housing market. But also, crucially, I put to him what I can do as an individual to have some impact on this conversation. And he's got a really thought provoking suggestion. But that is all coming up in just a minute. 

Audio Clip: [00:06:22] Sydney's sky high. Rents are here to stay with warnings tonight the crisis could actually get worse. The country's peak housing body is predicting Australia will be hundreds of thousands of homes short of what we need. 

Sascha: [00:06:35] Let's focus on what effect this is going to have on our existing housing supply problem because it is going to have an effect on our housing supply problem. How are we going to see that play out? 

Thomas: [00:06:46] Yeah, I mean, I think it is interesting. It's worth noting that it definitely is. And like I've seen arguments even in the papers this weekend of people saying the immigration is not caused, it is not the source of the rental crisis. It's not the entire source. But it's definitely a factor. And it's disingenuous to argue that it's not. And as someone who follows, you know, all the property market economists from Eliza, our Nicole logic to Shane Oliver MP, everyone's saying that immigration is having a big impact on the rental market. It's definitely true and it's definitely going to get worse. Like we're already a crisis levels and it is starting to become a real social problem in the sense that people aren't able to afford sustainable housing or suitable housing. You are bringing people into the country without a clear plan of where they're going to live, you know? I thought I was running stories about international students sleeping in tents because they can't find anywhere to live. So why are we opening up international student places if we don't have anywhere for them to live? That then creates this sort of underclass society that is forced into wage exploitation and dangerous working situation. And that creates another social problem. Yeah, but so yeah, it's getting bad. And the sad thing is there's no end in sight. Like, there's no quick fix to this. We can't build our way out. We just can't. You know, we struggle to build enough houses at the best of times. We have done for 20 years. We haven't been able to keep pace with population growth. It's not that we're not going to turn that around in the next five years to even ten years. There's no way we can turn that around. So we can't build our way out of the problem. So unless we sort of have a bit of a genuine discussion about these numbers, it's going to get worse. And because we've already the opening up the visas, we're moving through the quote unquote visa backlog. The agenda seems very clear that through 2023 is going to be another year of record high immigration and there's not going to be a conversation around whether that's a good idea or not. 

Sascha: [00:08:43] So, Thomas, I like to end with something that we can do as individuals, because I think sometimes when you talk about these big picture problems, you can feel a little bit helpless. Do you have any suggestions or what are some of the things that you think about on an individual basis that we can do that's within our control? 

Thomas: [00:09:00] Hmm. Well, you always ask this question session whenever I feel like a good answer for you. I think the big one I recommend is if you're having this conversation with people to help disentangle the immigration question from the race question. And I think to me, it feels like there's a bit of a deliberate attempt to keep immigration and race tangled up together to stop a real conversation around it. And I think it's you know, there's a reasonable question about what's the rate of growth. We like immigration, we're pro-immigration, but what's the right number? What is that number? What's good? You know, let's have a let's have a conversation around the number. It's not it's not a no, it's not that we don't like immigration. It's like, what's the number that's going to work? Because I think the consequences of this, if we let this go on for a few years, we then get a pushback against immigration, which then can pull in that racist sort of undertones and give it voice and give it a platform because the big immigration number is creating a problem. But that can get conflated with immigration itself. So we create a dangerous social situation. I think if we don't disentangle the number question from the from the raised question, and that's something I think we can all do in conversations when you're talking about it with people, if you hear people trying to try to mash them together, straighten them out, separate those two. And I think then if we can do that, then we can have an actual conversation around it. 

Sascha: [00:10:28] Thanks, Thomas. It's always fascinating talking to you, and I always enjoy your perspectives. You're going to be back with comedian versus economist next week. You've been on holiday, but I appreciate you coming off a mountain, coming from climbing, taking off herself and getting behind a microphone to chat about this with me today.

Thomas: [00:10:46] My pleasure. Thanks, Sascha. 

Sascha: [00:10:47] Thanks, Thomas. And we're going to leave it there for today. That is this episode of The Dive. Join me again for a new episode on Friday. Thank you so much for supporting us. A little reminder, I would say I'm too proud to beg, but I am not. Please open up your podcast player and give us a five star review. Makes all the difference in terms of climbing the charts, getting in front of other ears. And that's so important for us as an independent media company. Thank you so much for joining me today. Until next time.