Quantity and quality estimates of changes in dwelling affordability in metropolitan Melbourne

Abstract

The sale price of Australian dwellings has increased dramatically in recent times. Interestingly, the percentage of households owning their own home has remained relatively constant. This raises the important question of what dimensions of housing might households be trading-off in order to secure their own home? We estimate three aspects of the trade-off being made between house price and house quality/distance from the CBD. Using Melbourne metropolitan data we look at the changes over time in the relationship between income and house prices, affordability by income cohorts and distance cost by income cohort. Using data spanning 1994 to 2010 we find that affordability has declined across all income cohorts. Our findings indicate that households are facing a distance cost in some instances of over 10 kilometres to maintain a given level of affordability. Given our findings that the distance cost also varies by income cohort, this suggests a decline in the level of socio-economic diversity in some localities close to the CBD