Housing Prices and Geographical Scale: Australian Cities in the 1980s

Abstract

This paper examines the distribution of, and changes in, house prices in Australian cities during the 1980s, a period of considerable change in asset prices in general. The analysis is concerned to document the marked spatial variability of price movements and to relate these to processes of urban restructuring. Spatial variability is apparent at two scales: at the inter-metropolitan level as evidenced in trends across the major capital cities; and at the intra-metropolitan scale where differences between localities within one city, Melbourne, are identifiable. Substantial spatial differentials in both the level and in the rate of change over time of housing prices, have both efficiency and equity implications. Large regional price variations inhibit mobility and labour market adjustments; variations in the rate of increase both redistribute income and wealth in the form of capital gains, and differentially affect affordability levels. Analysis of different scales of price movement highlight the fact that some causal factors are common to all scales and some are scale dependent. At both scales, the most substantial rises and subsequent falls have been experienced in areas which have undergone of spatial restructuring consequent on a concentration of the effects of social and economic transformations. Changes in demand through long-term economic and social restructuring, however, were overwhelmed in the late 1980s by the deregulation of the financial system, which resulted in a greatly increased flow of finance into the housing sector. Despite high interest rates, a widespread belief that continued inflation would both raise the price of the commodity and reduce the real costs of borrowing, prompted a sharp but locationally specific rate of housing price increase followed by a slump in prices where the rises had been most extreme. The recession has increasingly affected all levels of the market and investment in housing generally is now being viewed much more cautiously.