“However, I would just like to point out and take five minutes of our time to say that in the quarterly essay, I started it by showing a couple of graphs showing that house prices started taking off in the year 2000, both in relation to GDP and relation to incomes. It was quite clear that up to that point, incomes and house prices rose at about the same rate, then they diverged in the year 2000.
So, the question then, which is a lot of what the quarterly essay was about, was answering the question of what the hell happened in 2000.
Tax.
And the answer is four things, right? There wasn't just one thing, there were four things. There was the capital gains tax discount, there was the reintroduction of first home buyer grants, there was a series of interest rate cuts by the Reserve Bank in response to the us.com crash, which did not result in an Australian recession, but the Reserve Bank acted as if or was concerned about a recession, so it cut interest rates five times.
And finally, there was a big increase, a big opening up of student visas to people from India and China. That was in the year 2001. And that resulted in a huge increase in immigration between 2005 and 2010.
Immigration tripled from 100,000 to 300,000. All of those four things related to demand. So what happened in the year 2000 was a big surge in demand.
And that surge in demand is the cause of our housing affordability crisis.”
“But the thing is that we're in the situation now where politically we can't actually do anything about demand. We're not going to change the tax system.
They're doing first-time buy grants willy-nilly. They're not able to cut immigration for some reason. And the Reserve Bank is cutting interest rates again.”
From The Money Café with Alan Kohler: The Mandalorian of Currency, 21 May 2025
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