It's taken for granted these days that house prices in inner and middle suburban Melbourne are much higher
than homes on offer in the city's outer areas.
But it wasn't always so. Back in 1994/95 average house prices did not increase prodigiously as you moved
closer towards the CBD. In fact this price versus distance relationship was reasonably flat (see FIgure 1).
Properties in inner areas enjoyed an accessibility advantage with respect to jobs and other services, as they
do today. However, congestion 15 years ago was nowhere near as bad, so the advantage of accessibility
wasn't as valuable to home buyers.
In the 15 years to 2009/10, house prices grew much faster in absolute terms in inner and middle suburbs.
There is now a pronounced gradient of increasing prices with reducing distance to the CBD. This shift in
housing prices is reducing social mobility in Melbourne. In 1994/95, people taking up residency in a first
home in a growth area could reasonably have contemplated moving closer towards the city, and taking up
the broader choices of jobs and services in these areas, as they became more established. They don't have
these choices today. They are likely to be confined to the same suburb or district they first bought in.
In 1994/95, a household on a median income could afford a $170,000 home. Comparing this with average
house prices across the metro area at that time shows that they could look to purchase a median house
in 75% percent of Melbourne's suburbs as close as 5 to 10km from the CBD.
In 2009/10, the equivalent household could afford $382,000 home. At this price, their choices of buying a
median house are confined to purchasing in less than 25% of Melbourne's suburbs, many of which are more
than 35 kilometres from the CBD. That is, unless they are prepared to seriously compromise on space and
house quality.
Figure 1 - Median House Price vs Average Income Affordability Threshold, 1994/95
Figure 2 - Median House Price vs Average Income Affordability Threshold, 2000/01
Figure 3 - Median House Price vs Average Income Affordability Threshold, 2009/10
Sources for Figures:
A Guide to Property Values 2009 - Department of Sustainability and Environment;
Household Income and Income Distribution (Cat. 3523.0) - Australian Bureau of Statistics