Immigration and housing affordability have become politically inseparable in contemporary Australia. With rents high, home ownership increasingly out of reach, and housing supply persistently undershooting official targets, it is tempting to conclude that fewer migrants would mean lower prices. That argument has intuitive appeal. More people require more homes. In tightly-constrained markets, additional demand pushes up rents and prices.

But intuition is not policy. The evidence suggests a more nuanced reality: migration increases housing demand, yet whether that demand translates into sustained price pressure depends fundamentally on the responsiveness of supply. Where planning systems restrict land use, delay approvals, and cap density, even modest demand shocks quickly become price shocks. Where supply is flexible and institutions allow building to respond, the long-term affordability effects are far smaller — and can even be offset by stronger economic and housing growth.

This paper argues that Australia’s housing crisis is primarily a supply failure, not simply a headcount problem.

It examines international and Australian evidence on migration and housing markets, including research on zoning restrictions, supply elasticity, and labour bottlenecks in construction. It also considers the role of skilled migration in strengthening the productive capacity of the economy — particularly in the very occupations needed to design, approve and build more homes.

The central point is straightforward. Australia does not face a binary choice between skilled migration and affordable housing. It faces a policy choice between maintaining restrictive land-use systems that convert growth into scarcity, or reforming those systems so that population growth can be absorbed through construction rather than capitalised into higher prices.

In short, the housing shortage is not an inevitable consequence of migration. It is the predictable result of constrained supply.

The choice is not ‘immigration or affordability’In Australia today, mass immigration is a political non-starter partly because many voters see the increased cost of housing as one of the country’s most urgent cost-of-living problems. A more plausible approach to immigration is narrower and more practical: a focused intake of skilled migrants who can help Australia innovate, raise productivity, and fill capability gaps without automatically worsening housing shortages.

True, a growing population raises housing demand, but the size of the cost effect depends on whether supply can respond. Skilled migrants can strengthen the supply side of the economy, including the people and systems needed to approve, design, and build more homes. In that sense, the real choice should not be ‘immigration or affordability’.

It should be whether Australia combines skilled immigration with faster homebuilding and better land-use rules.

Australia’s housing shortage and the concomitant affordability decline is real, as Sam Fox and I noted in a recent CIS report. But it does not follow that more skilled immigration must make matters worse. The key word is must. In a city where housing supply is fixed, adding more people pushes up rents and prices. In a city where supply can expand, the same population growth can be absorbed with much smaller price effects; especially over time. The research supports both parts of that claim. The argument is not that demand disappears. The argument is that policy and supply response decide whether demand becomes a lasting affordability problem.Start with the point that critics get right. Albert Saiz’s well-known U.S. study finds that immigration inflows raise local rents and housing values in destination cities, with an estimated effect of about 1% on rents and values for an inflow equal to 1% of a city’s population. That is a real demand effect that no serious account of the housing problem should deny.

But Saiz’s broader work shows that housing supply differs sharply across cities because of geography and regulation. In plain language, some places can build — but don’t. If a city’s house building program is constrained by planning rules, height limits, approval delays, and political veto points, then any demand shock, including migration, turns into a price shock faster. If supply is flexible, more of the shock turns into construction.

Read the whole paper at www.cis.org.au

Growth that Builds: Beyond the immigration blame game by Marian Tupy | Research Collection