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Immigration and the housing affordability crisis in Sydney and Melbourne

Housing Housing development Affordable housing Housing prices Immigration Sydney Melbourne

The housing affordability crisis in Sydney and Melbourne is close to the worst in the developed world. As of 2017, the ratio of median house prices to median household income in Sydney was 12.9 and in Melbourne 9.9. Only Vancouver and Hong Kong were as bad or worse on this metric.

The result is an intergenerational divide in which the younger generation have diminishing prospects of attaining the housing their parents’ generation enjoy. Property owners are feasting on extraordinary capital gains at the expense of young people who, in Sydney and Melbourne, will never experience any similar benefits because they cannot get onto even the lowest rung of the property ladder.

Why is the crisis so severe? The answer is no secret. First, successive Australian governments have kept in place significant tax incentives for owner-occupiers to upgrade and investors to purchase existing residential property. Second, the Coalition government has maintained very high migration levels, with around two-thirds of the net intake currently locating in Sydney and Melbourne. Migrants are the main contributors to the growth in both cities’ populations of over 100,000 each year.

The consequences are disturbing. Most young households in Sydney and Melbourne cannot afford to buy a house in established suburban areas. The proportion renting is rising sharply. In Sydney, as homeownership rates fell, the share of households headed by 30-34 year olds who were renting jumped from 48 per cent in 2011 to 53 per cent in 2016 (Table 1). In Melbourne the increase in this share over the same years was from 43 per cent to 48 per cent.

Many young households have been prompted to move to cheaper housing on the remote frontiers of both cities. There, they have to pay high prices for houses on tiny lots (averaging 400 square metres or less).

Both state governments are encouraging this outward movement by providing financial subsidies in the form of cash payments and stamp duty concessions to first home buyers. These incentives are also available to all migrants holding permanent visas, regardless of the migrant’s property ownership record prior to arriving in Australia.

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