Industry stalwart lashes out at YIMBYism as ‘monumental mistake’
AMP Bank’s chief economist Shane Oliver rarely minces his words.
To honour this tradition, he has outlined what he believes are some no-nonsense fixes to solving Australia’s housing shortage.
What not to do
With affordability sinking to record lows as national home prices once again surging ahead of incomes, Oliver believes this “chronic” problem demands urgent solutions.
He’s not wrong.
Data from AMP, the Australian Bureau of Statistics and Cotality shows the ratio of dwelling prices to wages and household income has more than doubled since 2000, with both measures now at all-time highs. The median time required to save a home deposit has blown out to 11 years, while tenants are now sacrificing a third of their income to pay rent.
Unfortunately, Oliver believes politicians and policymakers are barking up the wrong tree with their proposed solutions.
He warned against calls for blanket densification in cities, such as the Grattan Institute’s proposal to allow three-storey developments anywhere in capital cities.
“This extreme form of YIMBYism would be a monumental mistake,” Oliver said. “Not only would it push city land values further into the stratosphere… but it will put the nail in the coffin of the quarter acre block at the centre of the ‘Aussie dream’.”
Oliver is probably equally unimpressed by NSW Premier Chris Minns’ big bet on mid-rise builds, which have drawn sharp criticism and legal challenges from residents in affluent Sydney suburbs like Mosman and Woollahra.
He is also sceptical of Labor’s First Home Guarantee, which allows first-home buyers to purchase a home with a 5% deposit while avoiding expensive lenders mortgage insurance.
“Sure, a first home buyer can now get in with a 5% deposit, but this is with 95% debt,” Oliver said of Labor’s cornerstone homeownership policy.
The policy has drawn more than its fair share of critics, with analysts expecting it to pile even more upward pressure on house prices.
Massive housing undersupply
None of the above policies tackles the fact that “the fundamental demand/supply mismatch is the critical factor behind poor affordability”, Oliver said.
He noted that from the mid-2000s, annual population growth surged by around 150,000 people – primarily due to immigration – but dwelling completions failed to keep up, leading to a structural shortage.
AMP data shows that Australia now has a cumulative undersupply of 220,000 to 300,000 homes, a figure confirmed by tight rental vacancy rates across the country.
Four fixes to housing shortage
In Oliver’s view, there are four solutions to the problem:
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Cut immigration to align with housing supply
Oliver believes population growth must be brought in line with Australia’s capacity to build. “We have clearly failed to do this since the mid-2000s,” he said, calling for immigration to be reduced to around 200,000 per year, down from 316,000 in the year to March 2025. “This should be matched by efforts to reduce the accumulated housing shortfall of 200,000–300,000 dwellings.” -
Boost construction
The government’s pledge to build 1.2 million homes over five years is a step in the right direction, but Oliver noted “we are well below” the target. Only 174,000 homes were completed in the first year, with approvals running at just 190,000 annually. “To meet the target will require relaxing land use rules, less red and green tape, shifting to faster ways to build including modular and pre-fab homes, encouraging build-to-rent affordable housing, training and importing far more tradies, and refocussing more on units,” Oliver said. -
Decentralise to the regions
Encouraging people to live outside of major cities can ease urban pressure – but this requires infrastructure investment and regional housing development. “Decentralisation to regional Australia… needs appropriate infrastructure and measures to boost regional housing supply,” he said. -
Targeted tax reform
While Oliver cautioned against tax overhauls that risk distorting the market further, he supports replacing stamp duty with land tax and reducing the capital gains tax discount. “These reforms could help,” he said. “Stamp duty discourages transactions and downsizing, and the CGT discount encourages speculation.”
Migrants good for economy
Despite backing a reduction in immigration levels, Oliver stressed the economic importance of migration, especially international students.
“Immigration has been a huge benefit to Australia… boosting labour supply, supporting budgets, and contributing over $50 billion a year in education export earnings,” he said. One solution: “Universities should be able to have as many foreign students as they like providing they house them on campus.”
What about the investor problem?
Conveniently for a chief economist of a financial institution with a substantial client base of property investors, Oliver doesn’t necessarily believe the unprecedented growth of property investors’ share of the mortgage market is contributing to housing affordability.
“The drivers of poor housing affordability are hotly debated. Many zoom in on things like tax concessions for investors, SMSF buying and foreign demand. But investor and foreign demand were not big drivers of the 20-30% surge in prices over 2020-22,” said Oliver.
Others disagree, including the Reserve Bank of Australia.
“The rush back into the property market by investors had the potential to exacerbate the cycle in the housing market,” RBA governor Michele Bullock recently said. More investor participation, she warned, could increase loan-to-value ratios and overall leverage. “That introduces vulnerabilities into the system. So that’s the concern.”
Investor lending is now up by nearly a third from September 2023 levels and on a quarterly basis, has reached its highest level since the March quarter of 2022.
This has led to speculation that the Australian Prudential Regulation Authority (APRA) may reintroduce measures to limit its growth – an action it has taken in the past.
While he does not advocate for completely abolishing investor incentives like negative gearing, Oliver conceded that “there is a case to cap excessive use of negative gearing tax benefits”.
Foreign purchases, meanwhile, represent “a small part of total demand” and banning them “may make it even harder to get new unit construction off the ground”.
Oliver is under no illusions that housing affordability can be solved overnight. “There are no quick fixes,” he said. “But unless we get serious about these four key areas, the dream of home ownership will slip further out of reach for future generations.”
