Architecture is historical evidence and the stout, self-confident Victorian buildings lining Melbourne’s broad avenues confirm this is a metropolis that has been dynamic for a long time.
In 1851, a chap called Edward Hargraves, who had tried unsuccessfully to make his fortune in the Californian Gold Rush, returned from America convinced that there was gold to be found in Australia. He was right, and the subsequent Australian Gold Rush completely transformed Melbourne into the most exciting city in the British Empire, acquiring the moniker Marvellous Melbourne. The population exploded from about 77,000 in 1851 to more than 540,000 by 1861. Irish people escaping the Famine came in huge numbers. By the late 19th century, one in four Melbournians were Irish-born.
One of those immigrants was Peter Lalor, brother of James Fintan Lalor of the 1848 Young Irelander fame, who led a gold miners’ rebellion in Melbourne in 1854. Known as the Eureka Stockade, the rebellion was Australia’s first tax revolt. As thousands of hopeful miners descended on Melbourne, the government introduced a tax in the form of a gold licence – a kind of pay to play, colonial subscription fee for the right to get lucky. You paid whether or not you struck gold, so it was really a tax on hope. Inspired by the anti-tithe movement back in Ireland, Lalor led a group of rebel minors in a local uprising against the gold licence based on the principle that those who pay should have a say. Using the password ‘Vinegar Hill’, Lalor’s (mostly Irish) rebels, took on the local constabulary. The valiant but ultimately unsuccessful rebellion laid the foundation for the Australian Labor Party.
Today, the key battle for the Australian worker’s living standards is the same throughout the English-speaking world: the housing market. If you own a home here you have been getting rich for a number of years, and if you don’t then you are locked out of the Australian Dream.
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Over the past 50 years, the dream of upward social mobility was underpinned by rising property prices. After the second World War, Australia opened its doors to non-British immigration for the first time. The war shocked the Aussies in two distinct ways. Isolated and unable to count on the British navy which had surrendered in Singapore, Australia faced the real threat of Japanese invasion on its own. Only America’s success in the Pacific War saved Australia. From then, Australia realised that it needed to boost its population and that it couldn’t depend on the UK. It turned to immigrants from southern Europe, Greeks, Italians, Portuguese and Yugoslavs. In the 50 years after 1945, the population jumped from seven million to 18 million. Not only did the place fill up with people who liked good coffee, wine, olives and pasta, but it filled up with new homeowners who created the Australian Dream, ascending socially on the conveyor belt of rising housing prices and housing wealth.
So why has this bubble not burst, if house prices and rents are increasingly unaffordable for the average Aussie?
Unique among English-speaking industrialised countries, Australia managed to avoid the global financial crash of 2008 and house prices have been rising relentlessly since the early 1990s. Today the country has among the highest house prices in the world, and the Australian Dream of homeownership is becoming less and less possible for more and more people.
Even compared to Ireland, Australian house prices look expensive. The median house price in Dublin today is €480,000 compared with €679,000 in Sydney, €533,120 in Brisbane and €469,840 in Melbourne. Rents are lower than in Ireland where the average monthly rent for a family home is €2,055, whereas in Australia it’s €1,577. Chatting to a young Irish couple here yesterday, they made the point that although rents are a bit lower in Australia, what you get for your money is superior. The point is that the two countries are experiencing a similar dilemma: high house prices and rents are making housing the number one issue.
It is virtually impossible to have a conversation here without the topic of house prices coming up, which is typically a red flag for what might happen next. That said, people have been calling the end of the Australian house price bubble for years and things continue to tick upwards.
Looking at the numbers, the situation does look fragile. For example, although the figures above cited median house prices, when you look at average house prices a clear picture emerges. A classic barometer of affordability is a simple house price to income ratio. Average home prices in Australia (€473,000) are substantially higher than those in Ireland (€365,000), while median household incomes are lower (€51,542 vs €58,922). The result is a house price to income ratio of 9:2 for Australia compared to just 6:2 in Ireland. The same is true when comparing this metric for Dublin (7:2) to big Australian cities like Sydney (11:2), Melbourne (8:4) and Brisbane (9:4).
[ As Ireland has become richer, more Irish people are heading to AustraliaOpens in new window ]
If we look at the rent to income ratios, the figures suggest that the Irish rental market is more unaffordable than the Australian one, but only marginally so. Average rents in Ireland now stand at around €2,055 per month, rising to €2,476 in the capital – which accounts for a significant chunk (42 per cent) of the average household’s income each month. Meanwhile, rental prices in Australia seem to be slightly more affordable at €1,577 per month nationally, and ranging from Melbourne on the cheaper side (€1,407) to Sydney (€1,881) on the more expensive.
So why has this bubble not burst, if house prices and rents are increasingly unaffordable for the average Aussie?
One of the main reasons is that despite the fact that houses prices are a topic for radio chatshows, nearly 70 per cent of Australians own their own home. Therefore, a sizeable majority are still getting rich. On top of this, a whopping 2 million Australians – close to 10 per cent of the population- are small-time investors, owning an investment property. A massive political constituency of homeowners and rental property owners want to keep the whole thing going. And there are a whole series of tax deductions available for property investors – from interest costs to refurbishment expenses that can be written off against the owner’s other income.
This is a country that has mandatory voting. People are fined for not voting and full federal elections are held every three years. This doesn’t give much time for a government to do anything, and therefore the status quo tends to hold. In addition, a facet of compulsory voting is that elections are fought in the centre of the political spectrum – there are not enough people on the margins who can move the vote. If everyone votes, the margins are simply too small to matter, so the massive centrist property-owning block prevents any real change to the market. But this does not mean that things will simply carry on.
As we know in Ireland, property markets do implode. The more people believe things can only go upwards, the more recklessly people behave and the less prudential lenders become, emboldened by the aphrodisiac of profit. Mass immigration and foreign investment are keeping the pot brewing and all the while young Australians are being denied the chance of participating in the Australian Dream, a chance that was almost a rite of passage for their forefathers.
The coming battle for the wealth of this nation will not be the one between workers and employers as envisaged by the Young Irelander Peter Lalor, but will be among themselves: between Australian owner parents and their renter children.
