Immigration’s Negative Impact on Australia’s Housing Supply: A Crisis for Ordinary People, By Paul Walker and Tom North

Australia's housing crisis has become a pressing issue, with skyrocketing prices and rents making homeownership and secure tenancy increasingly unattainable for ordinary Australians. The National Housing Supply and Affordability Council's (NHSAC) State of the Housing System 2025 report, alongside data from the Australian Bureau of Statistics (ABS) and analyses like Leith van Onselen's June 16, 2025, article, point to high immigration as a significant driver of this crisis. This piece examines how elevated net overseas migration (NOM) exacerbates Australia's housing shortage, disproportionately harming ordinary citizens, and why managing immigration is critical to restoring affordability.

Australia's housing market is in a state of chronic unaffordability. According to the NHSAC, housing prices and rents reached record highs in 2024, with median household income requirements for new mortgages at 50% and for new leases at 33%. Aspiring homeowners now need 10.6 years to save for a deposit, up from previous decades, while rental vacancy rates remain critically low at 1.6%, well below the 3–4% indicative of a balanced market. The consequences are dire: young Australians are locked out of homeownership, rental competition is fierce, and homelessness is rising, particularly among vulnerable groups.

The NHSAC projects a net housing supply of 825,000 dwellings over the five-year National Housing Accord period (2024–2029), falling 79,000 short of underlying demand. This shortfall is driven by structural constraints, labour shortages, high material costs, and restrictive planning systems, but high population growth, fuelled by immigration, significantly amplifies demand, outpacing the nation's capacity to build homes.

Australia's population growth, largely driven by immigration, is a primary contributor to the housing crisis. ABS data for the year to April 2025 show 1,119,910 permanent and long-term arrivals, offset by 679,580 departures, yielding a net of 440,330 arrivals, near record highs. This follows a post-Covid surge, with NOM peaking at 510,000 in 2023–2024, far above the historical average of 226,000 since 2005. Over the first four months of 2025, net arrivals reached 212,660, closely tracking 2024's peak of 216,810.

This rapid population growth directly increases housing demand. The NHSAC estimates annual housing demand at 175,000 households from 2025–2026, driven largely by immigration, as 80% of migrants settle in capital cities like Sydney, Melbourne, and Brisbane. A 2024 Australian Housing and Urban Research Institute study found that one-third of rental price increases over the past two decades can be attributed to migration, underscoring its impact on the rental sector. A MIT study claims a 1% population increase from immigration raises rents by 1%.

The mismatch between immigration-driven demand and housing supply is stark. Since the mid-2000s, population growth has outstripped dwelling completions, creating a cumulative shortfall of 120,000–285,000 homes by 2025, depending on household size adjustments. The NHSAC's sensitivity analysis reveals that a 15% reduction in population growth could turn the projected 79,000-home deficit into a 40,000-home surplus, highlighting immigration's pivotal role.

The housing crisis, exacerbated by high immigration, disproportionately affects ordinary Australians, those without inherited wealth or high incomes. Key impacts include:

1.Unaffordable Homeownership: Median house prices in capital cities like Sydney ($1.3 million in 2023) require 50% of median household income for mortgage repayments, rendering homeownership unattainable for many. Young Australians, in particular, face declining homeownership rates, with the NHSAC noting that only 13% of homes sold in 2022–2023 were affordable for median-income households.

2.Rental Market Pressure: With vacancy rates at 1.6% and rents rising 35% since 2020, tenants face intense competition. CoreLogic reports a 10% rent increase in the past year, driven by demand from international students and skilled migrants. Ordinary renters, especially low-income households, are forced into substandard housing or further from job centres, disrupting education, employment, and social networks.

3.Social and Economic Inequality: The crisis widens the gap between property owners and non-owners, entrenching wealth inequality. Associate Professor Laurence Troy notes that housing wealth is "driving a wedge through society," favouring those with inherited wealth over workers reliant on wages. This undermines Australia's ethos of equality and opportunity.

4.Homelessness and Vulnerability: Low investment in social housing (down from 5.6% of stock in 1991 to 3.8% in 2023) leaves vulnerable groups, First Nations people, low-income earners, and those at risk of homelessness, without options. The NHSAC highlights the "unacceptably high human cost" of unaffordability, forcing trade-offs on essentials like food and healthcare.

Some argue that immigration is not the primary driver of the housing crisis. The Australia Institute contends that housing supply has grown faster than population (19% vs. 16% over the past decade), and tax policies like negative gearing and capital gains tax discounts, introduced in 1999, are the main culprits, fuelling speculative investment and price surges of 70%. The Settlement Council of Australia emphasises supply-side issues, zoning restrictions, slow approvals, and construction constraints, over migration, noting that cutting immigration would harm economic growth by reducing workforce skills and tax revenue.

However, these arguments underplay immigration's role. Even if supply kept pace historically, the post-Covid migration surge (549,000 in 2023) has overwhelmed current construction capacity, which remains below pre-pandemic levels due to labour shortages and high costs. The Reserve Bank of Australia estimates that the pandemic-induced drop in household size added demand for 120,000 extra dwellings, compounding migration pressures. Moreover, while tax policies inflate prices, immigration directly drives demand, as evidenced by NHSAC's projections and the rental price correlation.

High NOM exacerbates the supply-demand imbalance because Australia's construction sector cannot keep up. The Albanese government's target of 240,000 annual dwellings is unattainable under current constraints, with NHSAC forecasting only 903,000 market dwellings plus 40,000 social/affordable homes by 2029, 257,000 short of the 1.2 million goal. Immigration levels of 500,000 annually, as seen in 2023–2024, require an additional 60,000 dwellings per year, assuming three people per household, far exceeding building capacity.

Analysts like Diana Mousina from AMP argue that "the high pace of immigration is not compatible with the level of housing supply," driving rental inflation and overall costs. Posts on X, such as @SkyNewsAust's claim that migration shrinks housing supply by 1,000 homes weekly, reflect public frustration. Reducing NOM to 200,000 annually, as suggested by Shane Oliver, could align demand with construction capacity, easing pressure without eliminating migration's economic benefits.

Addressing the housing crisis requires a multifaceted approach, but managing immigration is critical. NHSAC's sensitivity analysis shows that a modest 15% reduction in population growth could eliminate the housing shortfall. Policy recommendations include:

Lower NOM Targets: Reduce NOM to a maximum 100,000 annually, as proposed by the Coalition and Oliver, to align with construction capacity. This would ease demand while preserving economic contributions from skilled migrants.

Boost Housing Supply: Accelerate planning reforms, reduce zoning restrictions, and incentivise build-to-rent schemes to increase affordable housing. The $1.5 billion Housing Support Program aims to connect essential services for new developments, but more investment is needed.

Reform Tax Policies: Phase out negative gearing and capital gains tax discounts to curb speculative investment, which inflates prices.

Invest in Social Housing: Increase social housing stock to 10% of total dwellings, as recommended by National Shelter, to support low-income and vulnerable Australians.

High immigration significantly worsens Australia's housing crisis by driving demand beyond the nation's capacity to build homes. The NHSAC's 2025 projections and ABS data confirm that NOM levels of 440,000–510,000 annually contribute to a 79,000-home shortfall over five years, pushing prices and rents to unaffordable levels. Ordinary Australians, young people, renters, and low-income households, bear the brunt, facing exclusion from homeownership, rental insecurity, and rising inequality. While supply constraints and tax policies play roles, immigration's impact is undeniable, as evidenced by rental price correlations and NHSAC's sensitivity analysis. A balanced solution, lowering NOM to sustainable levels, boosting supply, and reforming tax incentives, offers the best path to restore affordability and ensure a "fair go" for all Australians.

https://www.macrobusiness.com.au/2025/06/high-migration-pressures-housing-market/