Australia's housing affordability conundrum, as articulated by Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, is multifaceted. The critical factors include low-interest rates, a persistent housing supply shortage, and the impact of high immigration levels. While governmental efforts are directed at boosting supply, challenges persist, necessitating a deeper focus on decentralisation.

Australia's Surging Population: Oliver points out that population growth, primarily driven by immigration, is on an unprecedented trajectory. The surge, reaching 500,000 per annum, could lead to the fastest population growth since the 1950s, intensifying the housing crisis.

Poor Housing Affordability: As highlighted by Oliver, the decline in housing affordability is evident in the surge of home prices relative to income. The median multiple of house prices to income in major cities has risen significantly compared to the UK and the US. Oliver notes that the time required to save for a deposit has doubled since the mid-1990s.

Key Drivers of Poor Housing Affordability: According to Oliver, the fundamental drivers include the impact of low interest rates, a failure of housing supply to match demand, and the concentration of population in coastal cities. Notably, Oliver emphasises the critical role of immigration in exacerbating the demand-supply mismatch.

Population Growth and Housing Shortfall: Oliver's analysis underscores the challenge of immigration outpacing the increase in dwelling completions, resulting in a persistent undersupply of homes. Despite attempts to address this through initiatives like the unit-building boom, a rebound in immigration has once again tilted the property market back into undersupply.

Housing Supply: Government initiatives targeting 1.2 million new homes over five years are commendable, as per Oliver. However, he acknowledges challenges such as labour shortages and material scarcity that hinder progress. The ambitious target of 240,000 dwellings annually poses difficulties.

The Need for Lower Immigration Levels: Oliver proposes a crucial solution to the housing affordability issue: aligning immigration levels with the home-building industry's capacity. He estimates that reducing immigration levels to around 200,000 people per year is necessary to bring about a balance between supply and demand.

Conclusion: Drawing on Shane Oliver's insights, the housing affordability challenge in Australia requires a holistic approach. While efforts to boost housing supply are underway, aligning immigration levels with industry capacity is pivotal for sustainable solutions. Oliver's recommendations, including a focus on decentralisation and necessary policy reforms, underscore the complexity of addressing the chronic housing supply shortfall.

DMC Property Advisory