New PropTrack analysis shows Melbourne house values are almost 22 times higher than in 1980, but inflation strips the boom back to 4.1 times in real terms.
Inflation has been revealed as the silent killer of the Great Australian Dream, adding misleading weight to past property booms and hurting buyers fighting to keep up.
New PropTrack analysis shows Melbourne house values are almost 22 times higher than the $40,000 buyers paid in 1980, when shoulder pads, double denim and Michael Jackson ruled the decade.
But once the falling value of money is stripped out, the Victorian capital’s house prices are only 4.1 times higher in real terms.
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Experts warn the same force has also eaten into aspiring buyers’ savings through higher rents, groceries, insurance, bills and borrowing costs, while tax changes and rising holding costs reshape decisions for investors and higher-end homeowners.
PropTrack senior economist Angus Moore said Melbourne home values had still increased enormously, even after inflation was removed from the figures.
“Home prices have grown substantially faster than inflation and substantially faster than incomes,” Mr Moore said.
He said Melbourne’s detached house median rising from $40,000 in 1980 to about $875,000 showed the scale of the shift.
PropTrack economist Angus Moore said Melbourne home prices had grown substantially faster than inflation and incomes over the past four decades.
12 Hurley St, Balnarring sold for $2.4m, in Melbourne’s top spot for growth with a 493 per cent rise with inflation.
The data also shows how inflation swallowed large chunks of apparent gains in some of Melbourne’s wealthiest suburbs.
At the suburban level in Toorak, where the slightly more recent 1990 house price median was $625,000 and is now $4.805m, about $890,000 of the apparent gain reflected inflation rather than real price growth.
It’s the most extreme example for Melbourne.
Mr Moore said proposed capital gains tax changes would return Australia to a pre-1999 system that directly accounted for inflation, instead of the current approach that effectively assumed half a capital gain was inflation.
“What this shows is that’s true sometimes, but not true on average if you look over the last three decades,” he said.
Get Smart Financial director Rachael Bland said higher rents had made it significantly harder for first-home buyers to break into the property market.
Get Smart Financial director Rachael Bland said inflation and higher rents had made buying harder.
“Rents have made it significantly harder for first-home buyers,” Ms Bland said.
“Logically, many first-home buyers want to live close to mum and dad. But the reality is, with prices where they are around the country, clients need to shift their expectations.
“They may need to buy further out as their first home. The first home is often the hardest one to buy.”
Ms Bland said more buyers were using government schemes, low-deposit options and lenders mortgage insurance to enter the market sooner, while others were living at home longer or buying investment properties first.
Whitefox Advocacy director Nicholas Morrison said inflation, tax and holding costs were forcing higher-end buyers to rethink lifestyle and investment property decisions.
Whitefox Advocacy director Nicholas Morrison said inflation and tax were also changing decisions at the higher end of the market.
“I think inflation overall has changed the landscape of everything,” Mr Morrison said.
“When you go to the supermarket and it costs you $300 and it used to cost you $160, it obviously affects your ability to buy a property.”
Mr Morrison said more property decisions were now being made around tax and financial structure, particularly in the lifestyle and second-home market.
“It used to be someone wanted a beach house, so they worked hard, and bought a beach house,” he said.
“Now, what happens is someone wants a beach house or an investment property, they go and get all this tax advice and get told it’s not going to be as advantageous as they thought it was going to be.
“So there’s definitely a hesitation.”
CPA Australia tax lead Jenny Wong said proposed capital gains tax changes meant property investors should review whether their strategy still stacked up.
14 Rathmines St, Fairfield Sold: $1.75m, a growth of 431 per cent since 1990 — after inflation is deducted.
CPA Australia tax lead Jenny Wong said proposed capital gains tax changes would make inflation a far bigger part of property investment decisions.
She said investors should be reviewing their holdings before the new rules take effect, particularly if they were weighing up whether to hold, sell or buy newly built homes.
“The key questions to ask your CPA or registered tax agent are: ‘How does this affect my cost base? Should I get a market valuation? And does my investment strategy still stack up under the new rules?’” Ms Wong said.
| Suburb | Median price in 1990 | Price today from inflation alone | Actual median price today | Growth, after inflation deducted |
| Balnarring | $110,000 | $266,600 | $1,580,000 | 493% |
| Sorrento | $135,000 | $327,200 | $1,800,000 | 450% |
| Northcote | $130,000 | $315,100 | $1,733,000 | 450% |
| Balwyn | $217,500 | $527,100 | $2,834,000 | 438% |
| Fairfield | $140,000 | $339,300 | $1,800,000 | 431% |
| McKinnon | $145,000 | $351,400 | $1,854,000 | 428% |
| Kingsville | $95,250 | $230,800 | $1,200,000 | 420% |
| Blairgowrie | $120,000 | $290,800 | $1,500,000 | 416% |
| Glen Iris | $210,000 | $509,000 | $2,605,000 | 412% |
| Aberfeldie | $150,000 | $363,500 | $1,835,000 | 405% |
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