Only five suburbs in Melbourne are now accessible to low income earners.
Melbourne’s median house price has now tipped over $900,000, an ominous achievement largely driven by over 150 of this city’s suburbs now carrying a $1 million dollar price tag. In just under 12 years Melbourne’s median house price has skyrocketed by a massive $527,000, pushing many suburbs into the million dollar club. Back in 2006 only East Melbourne, Canterbury, Toorak and Brighton belonged to this ‘exclusive club’. It’s rather crowded now.
A link listing median house prices for over 800 Melbourne suburbs and Victorian locations can be found here
Source. Domain Group
Source. Domain Group
What does this mean? Owning a home in Australia was once considered a simple and achievable aspiration for millions of Australians. It was an integral part of our egalitarian society. Your ability to own a home was not limited by class or the wealth of your parents. If you were given enough breaks in life, secured a reasonably paying job, then some housing stock would have been within your reach. The ease in which people were able to buy a house ensured that your class did not define your ability to own property.
Affordable housing was also a significant reward for the many who risked everything to migrate to this country after the Second World War. Fleeing their homeland meant they were able to escape centuries of built up barriers that locked them into poverty. That poverty was not just dictated by birth but also geography. If you were born in a poor village or a mining town, then statistically it was a cradle to grave contract. Very few were ever able to rip up that contract and climb the social and economic ladder.
My mother was born into a poor Greek peasant family. By the age of 12 she was already working as a servant for the local aristocracy (yes, they actually had the landed gentry). By the age of 12 her life was already pre-determined for her. She would have been expected to work as a servant, in exchange she would be paid in food and boarding. By her late teens she would have been expected to marry, leave her servant lifestyle, bear children and they in turn would follow the same well-trodden path. Neither her, nor her children would have any other employment opportunities or an ability to move to another part of their country, buy a home, and find better work. Property was critical to making sure of that.
My mother endured the first half of that scenario but she escaped the second half thanks to Australia. Being fed leftovers and sleeping in freezing conditions would force any 18 year old to flee to any part of the world and search for a better life.
Migrating to Australia did not only mean a better life but it broke her generation free from this multi-generational poverty. My mother and her generation could move where work was readily available, many bought their own homes, and the rest is history as they say. Their children were able to grow up, move to wherever they needed to find work, secure a career and in turn aspire to an even better life. Unlike their parents, we could dream about jobs we would one day like to secure, and a house we would one day like to buy.
Melbourne’s property boom has now killed that dream and the life changing opportunities that came with it.
How bad is it?
A $66,000 yearly net household income seems to be the absolute rock bottom amount needed to break into Melbourne’s property market. But that amount only provides the 1.2 million Victorians who make up these households with an ability to buy into just five suburbs in Melbourne.
Their yearly household income will enable them to afford a $450,000 mortgage, including the 10% deposit. That gets them into the housing market in the suburbs of Dallas, Coolaroo, Bacchus Marsh, Melton South and Melton West. If these low income households are able to secure a property within these suburbs, they will need to direct $21,600 of their income in loan repayments (based on current interest rates), or 31% of their yearly income. Buying a home at rock bottom prices still forces them into mortgage stress.
Five suburbs is all that is left for low income earners.
But the news for these people gets worse. A child born to any of the 1.2 million low income Victorians will today face similar mobility challenges to that of the post Second World War European population. If they are born in Melbourne, then they will be immediately captive to their geography.
On the surface attending their local primary and secondary schools won’t be a problem. Most suburbs are sufficiently zoned to nearby schools. But socio disadvantage breeds many problems, especially in education. It’s not an accident that VCE performance scores in lower socioeconomic areas are always lower when compared to their wealthier counterparts.
But if a child manages to overcome their first two dozen hurdles in life the next obstacle on the running course may be a brick wall. Attending university will require considerable travel times, especially for those living along Melbourne’s fringes. These students will have next to zero financial support from family. Mum and dad cannot be relied upon as a backup. Securing a part time job to self-finance their education is also very challenging when you again factor in the travel times already eating up their spare time. Renting closer to most university campuses would be near impossible given rental prices around most Melbourne’s universities are astronomical. Again, mum and dad cannot help here. Share housing for many would be out the question. The bond alone makes it prohibitive for many prospective students from poor families.
Without that university degree, the vast majority of new economy jobs will also be out of their reach and in turn earning capacity will be lower. Which now brings us back to the intergenerational problem. At best these students may go onto attaining a trade which will help them acquire a wage greater than that of their parents but in reality it will only provide them access to another half a dozen suburbs.
For most, renting will be the only option and again, affordable rent will only be available along Melbourne’s fringes. Their wealthier counterparts will belong to the asset rich section of our society. Their geography and their parents’ wealth will mean they will be able to go to university and secure a well-paying job. They will also benefit from their parents’ inheritance, even if initially buying a home is out of reach. They will have these doors opened, opportunities made available because they belong to the class in Melbourne who own assets. Being a member of this class is now just as beneficial as belonging to Europe’s 19th-century aristocracy.
All of this compounds existing social and economic problems.
It is important to mention that our university sector is already excluding the vast majority of young people from lower socioeconomic backgrounds. Currently, only 16% manage to get into university but they too experience the greatest number of dropouts.
So what can be done? Arguing for any significant policy changes to tackle this problem will face significant institutional resistance. The wealthy asset class now fight against any affordable housing being built near them, they fight any attempt to tackle capital gains tax policy or any other incentive that has enriched them. They have powerful allies in our parliaments, with many MPs owning multiple properties themselves and they have powerful allies within the investment community that stand to lose millions if housing truly becomes a social responsibility for government.
What are the solutions? Well, we can argue for Melbourne’s urban growth boundary to be removed as a policy but that would be foolish without a comprehensive plan to encourage employers to set up operations along Melbourne’s fringes. That’s pretty hard given most investment seems to be only in the industries that employ the asset class.
A side note. Melbourne’s urban growth boundary policy was first implemented when Melbourne was a provincial city. It is now a mega metropolis and governments need to stop treating this policy like some sacred cow. It’s foolish and archaic.
We can argue that new apartment construction within the middle to the inner ring of Melbourne must contain a certain percentage of affordable housing, made only available to people under a certain income range and means tested against the parents’ overall wealth. This policy has had some success overseas but it will take a brave government to enforce it.
Melbourne was named after William Lamb, 2nd Viscount Melbourne, UK Prime Minister. He was born in 1779 to an aristocratic Whig family. In a warped way, the city named after him can easily be claimed by the aristocrats once again.
As for the 1.2 million low income Victorians? Unless massive housing reform occurs, they may as well be living in Ag Paraskevi on the Island of Lemnos in 1962.