While Labor’s craven capitulation to the forces of Little Australia is deeply disturbing, there’s a chance it might actually produce quality policy.

In essence this is a major economic policy retreat by both sides of politics driven by a small number of voters in outer-suburban seats. Many of those voters undoubtedly have legitimate concerns about the poor provision of infrastructure in outer-suburban areas. Others are simply bigots of the “f-ck off, we’re full” variety.

The tiny numbers of these voters is evident from the polls.  While the majority of voters want lower migration, the number for whom it is an important issue is tiny.  Yesterday’s Essential Report showed that only 12% in total of voters identified it as either the most important, second most important or third most important issue for them in deciding their vote — fewer than in May.

But their disproportionate significance comes from being located in marginal seats in outer-suburban suburbs.  Population pressure is not an issue in regional Australia — one regional MP told Crikey he had raised the issue several times but had had no reaction at all from his electorate.

Nonetheless, in its effort to not merely defend itself on the population issue but, apparently, actively campaign on it, Labor has produced the beginnings of a sensible policy.  The “Building Better Regional Cities” policy announced by the Prime Minister on Sunday and reinforced in yesterday’s trip to Townsville, targets one of the most key problems preventing the supply of housing responding to higher demand, the inability of state and local governments to provide appropriate utilities and transport infrastructure for greenfields housing developments at a sufficiently rapid rate. While there are other significant housing supply issues — most importantly, the lack of competition in business and property development lending following the GFC — infrastructure planning and provision is a critical impediment when different levels of government are unable to roll out the expensive infrastructure needed before housing developments can proceed.

Labor’s policy is aimed at providing about $15 million each to 15 councils to enable them to provide housing development infrastructure in conjunction with the private sector, in effect introducing Commonwealth-level funding to directly remove the infrastructure impediment.

The only problem is, it’s aimed at councils in major regional centres, not at the outer suburbs of major cities, where the real problems of infrastructure provision are driving house prices up while supply is unable to keep up.

Labor must surely move to address this gap before the campaign is over.  However, the cost of making a serious dent in infrastructure provision on the outskirts of Sydney, Melbourne and Brisbane is going to be a lot higher than the $200 million or so Gillard has committed to the Building Better Regional Cities policy.

But there’s a strong policy case for a substantial investment by the Commonwealth in this area, in effect using the Commonwealth’s strong credit rating and low debt to invest where state and local governments can’t afford to.  This is government spending that actually reduces pressure on interest rates and inflation by assisting in the provision of new dwelling stock.

It should be a temporary measure.  The long-term goal of all levels of Australian governments should be a housing market from which the current array of impediments that prevent supply responding to demand are removed and in which governments play their roles of co-ordination, infrastructure provision and regulation as effectively as possible. That would mean governments could get out of direct intervention in the housing market, except for provision of social housing, another area where governments have underperformed for years until Kevin Rudd invested heavily in it.

But for the moment, the gap between Australia’s housing stock and its population continues to grow. A policy aimed at better outer-suburban infrastructure would be a valuable start in dealing with it.