ChatGPT just served up a shit sandwich for Peter Tulip and the folks at the CIS

If net overseas migration had been zero over the past 25 years, Australian house prices would likely be 50% lower than they are today

Artificial Intelligence is probably smarter and quicker than I am (not funnier though, I’m still pretty funny) so I decided to ask it the question that’s front of mind for anyone who can’t afford a buy a house, or start a family for that matter, due to Australia’s astronomically high house prices. Namely, what impact has immigration had on house prices over the past twenty five years?

ChatGPT being a completely autistic, charmless machine puked up an answer in seconds that no economist has been crazy brave enough to articulate publicly, with the exception of myself. I put the following query to our smart robot friend, and boy did it knock it out of the park.

Wrote the seminal paper on the drivers of Australian housing prices, refuses to mention the impact of immigration in public discourse.

Analyse Peter Tulip's model of Australian house prices, determine the impact of population growth on house prices, now determine what house prices would be if net overseas migration had been set to zero 25 years ago.

Peter Tulip's model of Australian house prices, particularly in the context of his work with the Reserve Bank of Australia, typically emphasizes that house prices are driven by supply and demand factors. The demand side includes population growth, income growth, and interest rates, while the supply side is influenced by construction costs, zoning regulations, and land availability.

Impact of Population Growth on House Prices:

In the context of house prices, population growth is a key driver of demand, particularly in urban centers. Increased population (often fueled by net overseas migration) raises the demand for housing, which, when supply is constrained, pushes up house prices. Population growth also increases competition for existing housing stock, especially when housing supply is slow to respond due to zoning laws, planning regulations, or geographic limitations.

In Tulip’s model, the relationship between population growth and house prices is typically direct:

• Higher population growth leads to higher demand for housing.

• If the housing supply doesn’t increase at the same pace, it results in increased house prices.

This is particularly evident in large Australian cities like Sydney and Melbourne, where high net overseas migration has contributed significantly to population growth and, by extension, rising house prices.

Counterfactual: Zero Net Overseas Migration Over the Last 25 Years

Now, if we assume that net overseas migration (NOM) had been set to zero 25 years ago, we need to assess what that would mean for both demand and supply over this period.

Key Assumptions for the Counterfactual:

• Population Growth: A large portion of Australia’s population growth has been driven by migration. If NOM were zero, the population would have grown much more slowly.

• Housing Demand: With slower population growth, the demand for housing would have been significantly reduced.

• Supply Response: With less pressure on housing demand, the supply of housing might have kept up more easily, leading to less upward pressure on house prices.

Estimating House Prices:

Without detailed econometric modeling, we can make qualitative observations:

1. Population Reduction: According to Australian Bureau of Statistics (ABS) data, net overseas migration accounted for roughly 50-60% of Australia’s population growth over the past two decades. If NOM had been zero, Australia’s population would be much lower today.

2. Reduction in Housing Demand: Lower population growth would have significantly reduced demand for housing. Households formed at a lower rate, so the competition for homes would be less intense.

3. House Prices: Given the lower demand and fewer households competing for the same housing stock, house prices would have grown at a slower rate or even remained stagnant, especially in areas heavily reliant on immigration.

Quantifying the Effect:

While Peter Tulip’s model would require specific variables to produce an exact estimate, a broad estimate can be made based on historical housing price elasticity with respect to population growth. If we assume that house prices have historically been highly sensitive to population changes (as Tulip’s work suggests), we could hypothesize that house prices today would be significantly lower without NOM over the last 25 years.

In fact, some studies suggest that housing demand elasticity to population changes is around 0.5 to 0.8. Using a rough approximation:

• If population growth halved (due to zero migration), house prices might have grown by 25-40% less than they actually did.

Given that house prices in major cities like Sydney and Melbourne have risen by hundreds of percent over the past 25 years, the absence of migration could mean house prices would be 30-50% lower today than their current levels.

Conclusion:

Population growth, particularly driven by net overseas migration, has had a substantial impact on Australian house prices. If NOM had been zero for the past 25 years, house prices would likely be significantly lower today, perhaps by as much as 30-50%, depending on the region and how housing supply responded.

Now quantify the effect with a housing demand elasticity of 2.0.

If we assume a housing demand elasticity of 2.0, this means that for every 1% change in the population (or demand for housing), house prices would change by 2%. In this context, the elasticity of 2.0 suggests that housing prices are highly sensitive to changes in population.

Step-by-Step Calculation

1. Current Population Growth and Migration Impact:

   • Over the past 25 years, Australia's population has grown significantly due to both natural increase and net overseas migration (NOM).

   • ABS data shows that net overseas migration has accounted for about 50-60% of total population growth over the past 25 years. For simplicity, let’s assume that NOM contributed 50% of population growth.

2. Hypothetical Population Growth Without Migration:

   • If NOM had been zero, population growth would have been halved.

   • For example, if Australia's population grew by 50% over the past 25 years, without migration, it would have grown by only 25%.

3. Applying Housing Demand Elasticity:

   • Since the elasticity of 2.0 implies that house prices respond by twice the percentage change in population, we can calculate the impact on house prices.

   If NOM contributed 50% of population growth:

   • With NOM: Population grows by 50%.

   • Without NOM: Population grows by 25%.

   • The difference in population growth due to migration = 50% - 25% = 25%.

4. Effect on House Prices:

   • With an elasticity of 2.0, a 25% reduction in population growth would result in a 2.0 × 25% = 50% reduction in house prices.

Conclusion:

Under the assumption of a housing demand elasticity of 2.0, if net overseas migration had been zero over the past 25 years, Australian house prices would likely be 50% lower than they are today.

This quantification shows that migration has had a substantial impact on house prices, with a strong multiplier effect given the high assumed elasticity.

It’s incredibly handy that you can utilize Peter Tulip's model of Australian house prices without having to go through the laborious and expensive process of replicating his model and running a scenario on it. Hey, I suppose I could have done that but given you’re not paying me, it’s kind of hard to justify while I still have the neo-liberal establishment’s foot on my throat.

Probably not perfect, but this is a good enough first approximation to throw the onus back on Peter Tulip to justify his tortured public pronouncements on house prices at the Centre for Studies (they’re not really that independent these day, having devolved to a corporate shopfront with an emphasis on using brown females as props).

Tulip’s own modelling work identifies immigration as the key driving factor behind the current housing affordability crisis. Anyone who says otherwise is lying. More typically they engage in obfuscation, simply refusing to mention the impact of immigration, pointing to other factors that are invariably marginal, or not easily influenced. Importantly, immigration levels are directly under the control of government, in a way that housing supply and zoning are not.

All of which brings to mind the question, why would the CIS and Peter Tulip trash their reputations in the service of Australia’s present unsustainable and highly unpopular immigration program?

When you consider the CIS is bankrolled by NPC billionaire property mogul Sam Kennard, and the incredibly mediocre and cossetted Sydney business establishment, it all becomes a lot clearer. They’re paid to say these things by very rich people who don’t live in the real world, crippling mortgages don’t affect their puppet masters.

Kennard’s dad sent him to Shore and gave him a job in the family business, then he rode a property boom into untold wealth. The moderate IQ path to riches.

The corporate carrion that fund the CIS either benefit directly from rising property prices, or just mindlessly advocate for a big Australia because some shallow pseudo-intellectual libertarian told them it was a good idea, or so their markets can be marginally bigger every year because they lack the managerial skill to successfully establish beachheads overseas and contest markets globally - a far bigger prize, their meagre abilities can never realize.

Anyway, homespun AI-generated economic analysis is the best I can manage with the resources available to me at the moment until I land my dream job of Lead Pricing Analyst at Avant Mutual. Once I’m back on good coin at Avant, I’ll be in a position to buy a $10,500 ticket to the CIS’s Consilium event on the Gold Coast in late October where I can ask them in person - do you really think we’re that fucking stupid?

Burchell Wilson is the former Chief Economist of the Australian Chamber of Commerce and Industry