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Housing prices & migration

House prices in Australia are expensive because we live in a highly urbanised society that is subject to high rates of immigration. In the year to 30 June population grew by 407,000 of which 244,000 was net migration and 162,000 natural population increase.  Deaths over this period were 147,000. Without the migration the supply of housing would come close to balancing the need for housing by new families – not quite since, over time, single more people are living alone and the size of the “family” unit is decreasing.

There are strict planning controls that limit the release of land supply but for the most part this is a good thing.The destruction of undeveloped land is a serious concern as is urban sprawl and the consequences of having huge mega-cities.

I don’t want to argue the economic case for migration (I have done it too many times both “pro” and “con”) except to say that the triangle of benefits from it are likely to be very small – particularly if capital is highly mobile internationally.  The main effect of migration will be to drive up prices of fixed assets like land and rates of return on capital. These rates of return will not increase much if capital is highly mobile.  The main effect will be to force lower weaves and to increase the share of income accruing to property owners. To worsen the functional distribution of income.

A long-standing argument however is that we need a strongly expanding housing sector to boost demand both for housing and for the consumer durables used in housing. This is necessary to keep the economy growing at 2%+. Indeed some economists argue that the business cycle itself is simply a function of cyclical trends in housing demands.  In the short-run this argument seems correct. Private investment in housing is a major part of private investment so that fluctuations in it will have “multiplier” effects throughout the economy.  But from a longer-term perspective the argument is nonsense.  We should build houses to house families not to drive the macroeconomy.  Housing investment is an instrument of policy but not a target.  We can invest in many other things that also provide social gains. The idea that we must commit to 2%+ growth is infantile – let’s enjoy the fantastic uncrowded, unpolluted environment we have  and tell the gnomes from the Business Council to go away.

Instead of relying on a never-ending flow of migrants to boost the economy via its effect on housing demands we can settle for a relatively fixed housing stock which is maintained and improved.  It is unnecessary to have vast mega-cities with their attendant environmental problems. We can spend more of our existing resources improving distribution issues and spending on education and cultural development.   Yes, I have become strongly anti-growth.  The ethic is fallacious and, accordingly, most of modern macroeconomics is irrelevant to how we should live our lives. The pointless pursuit of a larger population is illustrative of a general class of macroeconomic fallacies.

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