Implementation plans > Housing > What is the nature of the housing market?

What is the nature of the housing market?
Where people choose to live and the type of housing they select is influenced by a number of factors. These include the cost of housing, accessibility to desirable services and employment opportunities, preference for different neighbourhoods and lifestyle choice.

According to the 2001 census data from the Australian Bureau of Statistics (ABS), metropolitan Melbourne is home to almost 1.2 million households, 75 per cent of them living in detached houses. Of all households, approximately 37 per cent consist of couples with children, 23 per cent are couples without children, 11 per cent are single-parent families and 23 per cent are single-person households. Overall, 70 per cent of all households either own or are buying their home, approximately 20 per cent of households are renting through the private rental market, 3 per cent rent through the public sector, and the remaining 7 per cent either had a different type of tenure or chose not to answer.

Melbourne’s housing market is becoming much more complex and, in recent years, the market has exhibited some significant changes.

Households are becoming smaller, although many people are seeking houses that offer more floor space. However, while sale and rental prices in some outer areas of Melbourne remain relatively stable, prices in middle and inner areas have climbed so that well-located housing is becoming increasingly unaffordable for many people.

Why and how is it changing?

Changes in household structure
Melbourne’s population is ageing. By 2030, it is estimated that the proportion of persons aged 60 years of age and over will increase from 17 per cent to 27 per cent of the total population. During the same period, the proportion of those under 15 years of age is expected to fall from 20 per cent to 15 per cent. Household sizes will also fall during this period from the present 2.6 persons per household to 2.25 by 2030.

These changes will mean that the growth rate for households exceeds the population growth rate over the same period. Almost 90 per cent of additional households over this period will be one-person and two-person households. As a result, household structures across metropolitan Melbourne will change significantly.

Figure 1. Projected share, by household type, of the 620,000
additional households, Victoria 2001-2031 - click for more detail

Figure 2. Population by age group, Melbourne Statistical
Division (trend projections) - click for more detail

Past patterns of housing consumption and household types give some insight into future trends. ABS data on the Melbourne Statistical Division from 1991–96 indicates some dramatic changes in the type of housing we are choosing. During this period:

• there was an overall increase of 146,000 households
• the largest absolute growth household type during the period was childless couples, accounting for approximately 67,000 households
• 72 per cent of childless couple households (predominantly those aged over 45 years) chose separate housing, but the greatest rate of growth in this group was in flats and apartments, up 47 per cent during the period
• the next largest group in terms of absolute growth was single-person households, whose housing choices were split between separate houses and flats and apartments – this split was relatively uniform across all ages in this group
• fewer couples with children chose to live in separate houses, semi-detached houses and terraces, while more moved into flats and apartments
• overall, growth was relatively weak for detached housing, it fell for semi-detached houses and terraces, and rose sharply for flats and apartments.

(Source: Swinburne Institute for Social Research (2000) Melbourne’s Housing Past, Housing Futures)

Changes in housing production
In recent years, Melbourne has witnessed the emergence of a more complex housing industry. Small building companies are now competing with larger players, and there is a new, substantial and relatively sophisticated multi-unit building sector.

Melbourne’s housing industry has traditionally consisted of smaller businesses working for private clients, building to order rather than on a speculative basis, with mostly single-storey houses concentrated in fringe locations.

Government policies aimed at urban consolidation and providing housing diversity have led to a new regulatory environment that encouraged higher densities in many middle and particularly inner suburbs. This resulted in different types of houses, often produced by a different type of builder.

In another major change, house builders also have become developers, using construction techniques similar to commercial developments, and undertaking developments largely of a speculative nature relying on pre-sales to minimise risk.

While the supply of medium and higher-density housing has increased in all regions of Melbourne, much of this growth has been confined to inner Melbourne. In 1998–99, for example, 80 per cent of all flats were built in inner Melbourne. Elsewhere in metropolitan Melbourne, townhouses and detached housing accounted for 88 per cent of new housing stock.

These changes are creating a different housing landscape. While much of the change can be attributed to who we are and how we want to live, it can also lead to significant social problems, particularly associated with changes in housing affordability.

Changes in housing affordability
Statistics show a growing shortage of affordable housing for home purchasers and in rental accommodation.

Prices in inner areas continue to escalate, putting buying or renting there out of the reach of those on lower incomes. Home buyers on below-average incomes are left with few choices. The trend is for these households to concentrate in outer areas of Melbourne, where housing prices have not risen to the same extent and home ownership is still a possibility. Often, these areas are not as well serviced as the established middle and inner areas.

Figure 3. Areas of relative disadvantage, 1996 - click for more detail

Recent trends only accentuate inequalities in the housing market. Areas of metropolitan Melbourne with high-income levels tend to experience the highest rates of house price inflation and, therefore, wealth creation through home ownership. At the same time, house prices in a number of outer suburbs have experienced real price falls. These patterns lead to a more polarised housing market, in terms of home ownership and also in the private rental sector.

Traditionally, the private rental sector has operated as a short-term bridge between living with parents and moving into first-home ownership. While this still holds true for some, there is evidence that private rental now represents the preferred or only option for a growing number of Victorians. For some, private rental reflects a need for flexibility to take up employment opportunities or a decision to use other investment vehicles for wealth creation as an alternative to home purchase. However, for many households on low-to-moderate incomes, the increased time spent in the private rental market reflects an inability to enter into home ownership.

There has been a significant decline in low-cost private rental housing stock, and this continues, especially in inner Melbourne and other areas with good access to employment, transport and other services. Low-cost rental stock is in decline and increasingly concentrated in a few outer areas of metropolitan Melbourne.

What are the main issues that affect housing?

Growth in people and households
By 2030, metropolitan Melbourne’s population is expected to increase by 620,000 households and by 925,000 people. Managing this increase will present substantial challenges for where and how we live. We face across-the-board changes that will alter our perception of what we want in housing, and the way the housing market develops. These include:

• the greying of our population – almost 30 per cent of the total population will be over the age of 60 by 2030
• a change in household structures – one-person and two-person households will become more numerous and account for an estimated 90 per cent of all additional households between now and 2030
• a change in the types of houses we live in – for reasons of cost, changing lifestyles, and greater diversity in housing stock
• increased reliance on rental accommodation – more people will rent from necessity or from choice
• greater polarisation – with housing prices and affordability tied to income levels and access to facilities and services.

Figure 4. Projected growth of population and households for
the Melbourne Statistical Division, 2001–31 - click for more detail

Planning for a more compact city
Melbourne 2030 recognises the need for development of new urban areas to accommodate the forecast growth in population and households, but it intends that new housing developments at the fringe should be balanced by more intensive use of existing infrastructure, facilities and opportunities within metropolitan Melbourne.

Encouraging and supporting new households to locate in metropolitan strategic redevelopment sites will help achieve important objectives of Melbourne 2030. Locations with good access to a range of facilities, services and public transport will be supported as preferred locations for higher-density housing.

Melbourne 2030 also supports continued change in housing stock in established areas as a way of providing a range of options to meet the changing needs of residents. A growing proportion of new households will be accommodated at activity centres and strategic redevelopment sites, but a substantial share of new dwellings will continue to be built in established residential areas. Within these areas, established character will be maintained and respected through the new residential development provisions (ResCode).

The distribution of new dwelling activity during the period 1996-97 to 2000-01 is shown by Figure 5. This figure also indicates a proposed distribution for new households over the next 30 years.

Figure 5. Compact city - click for more detail

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