Errors in population commentary from Dr Liz Allen
Good evening Liz,
What follows is a response to some tweets you sent tonight. For some reason, when you talk about population’s role in house prices you make some mistakes that are implausible a demographer could make.
Your tweet read
Housing ‘unaffordability’ is worsened by population growth because house prices are a major factor of housing affordability. There is upwards pressure on house prices when the population rises because there is less land per person.
COVID did not prove that population growth does not effect house prices and housing affordability.
Firstly, Australia’s population increased every year due to natural increase, even during the pandemic. The claim that it does not is just big business spin and easily disproven on the public record. During the pandemic the population actually increased, just less than normal. See page 5 of Treasury’s 2021 Population Statement
However, the population grew more slowly than usual and migration was negative whereas house prices soared either of which may have been what you meant.
House prices are effected by many things are happening all at once. This means that two things moving at different speeds or in opposite directions does not prove that they are unrelated. In summary, negative migration growth (and the perceived drop in population growth in your model) put downward pressure on house prices because there was now more land per person. However, this was offset by other factors that put incredible and in some cases unprecedented upwards pressure on house prices. Specifically
- natural increase;
- interest rates;
- fiscal policy;
- quantitative easing; and
- the HomeBuilder scheme.
Natural increase
In both years of COVID the population grew by about 130,000 a year, see above table from the population statement.
Interest rates
Interest rates collapsed during the pandemic. Most people borrow to buy houses, when interest rates drop more people can buy houses and the price of houses goes up (as did other things from used cars to bitcoin in 2020).
Secondary source: March 2022 RBA Bulletin Developments in Banks’ Funding Costs and Lending Rates
Fiscal policy
During the pandemic the Commonwealth government ran a very large deficit (it spent more than it taxed).
Source: https://www.rba.gov.au/chart-pack/government.html
In 2018–19, the Australian Government general government sector recorded an underlying cash deficit of $0.7 billion (0.0 per cent of gross domestic product (GDP)). The net operating balance was in surplus by $8.7 billion (0.4 per cent of GDP). https://archive.budget.gov.au/2018-19/fbo/FBO_2018-19_web.pdf
In 2019–20, the Australian Government general government sector recorded an underlying cash deficit of $85.3 billion (4.3 per cent of gross domestic product (GDP)). The net operating balance was in deficit by $92.3 billion (4.7 per cent of GDP). https://archive.budget.gov.au/2019-20/fbo/download/FBO-2019-20.pdf
In 2020–21, the Australian Government general government sector recorded an underlying cash deficit of $134.2 billion (6.5 per cent of gross domestic product (GDP)). https://archive.budget.gov.au/2020-21/fbo/download/fbo_2020-21.pdf
The expansionary fiscal policy encouraged spending in general.
Quantitative easing
During the pandemic the Reserve Bank of Australia carried out quantitative easing (QE), where it bought $337bn of commonwealth and state government debt.
The quantitative easing program has helped keep interest rates on government debt at record lows while also pumping money into the broader economy. https://www.smh.com.au/politics/federal/rba-to-end-big-spending-qe-program-as-inflation- pressures-grow-20220131-p59sig.html
QE puts downward pressure on interest rates, lower interest rates put upwards pressure on the price of houses (and everything else) because money itself is becoming cheaper.
HomeBuilder scheme
HomeBuilder provided eligible owner-occupiers (including first home buyers) with a grant to build a new home or substantially renovate an existing home. HomeBuilder assisted the residential construction market by encouraging the commencement of new home builds and renovations. https://treasury.gov.au/coronavirus/homebuilder
Ultimately, the big winners from HomeBuilder are large developers, who will be able to inflate the cost of their house-and-land packages, while also clearing their inventory. https://www.macrobusiness.com.au/2020/07/homebuilder-a-successful-dud/
A more obvious short-term demonstration of ideology overruling better policy was the Morrison government’s preference for gifting more than $2.5 billion in HomeBuilder payments to people who mostly did not really need the money, rather than seize an opportunity to make a significant dint in our affordable housing crisis. (If you can afford to spend between $150,000 and $750,000 on a renovation, you don’t really need a $25,000 handout from the government.) https://thenewdaily.com.au/opinion/2022/01/28/michael-pascoe-housing-policy-fail/
There were many other factors including that the richest people in the country moved house in the Spring of 2020 en masse; that the whole country during lockdown came to really value the quality of housing after spending so much time at home; the return of very well heeled expats; and the FOMO that magnifies housing price rises. But I just note those in passing as I don’t have any useful data.
A falling population means less competition between workers, tenants and home buyers plus an improvement in every environmental problem. It is a workers’, tenants’ and home buyers’ paradise. Business hates it because they want more customers, more competition between workers, more competition between tenants and more competition between home buyers. That is why the Housing Industry Association, Business Council of Australia and the Australian Industry Group along with every other business group is demanding higher migration, which, as the productivity commission noted, is our de facto population policy. The HIA would not be arguing for something that ended the housing affordability crisis.
Liz, I would be interested to hear your thoughts on the above. I have read your book and I sense that you have fallen onto the Big Australia by complete accident. I am trying to help you get off it. Please contact me by twitter or by phone or email at any time, I am the President of the Queensland branch of Sustainable Population Australia and my contact details are on the website. I would be happy to discuss this with you further in any forum or medium.