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Melbourne 2030: Planning Rhetoric Versus Urban Reality

CHAPTER 4

DEMOGRAPHIC CONSTRAINTS

Bob Birrell, Kevin O’Connor, Virginia Rapson and Ernest Healy

It is projected that Melbourne will need another 600,000 dwellings over the period to 2030. The Melbourne 2030 strategy is built on the assumption that an ageing population and the associated smaller households will want to downsize to smaller dwellings and thus will generate an increased demand for medium to high density housing. It is also asserted that housing tastes are changing for younger households. This chapter evaluates these assumptions. It provides projections of household numbers by household type which confirm that there will be a major growth in the numbers of couple without children and lone person households. But most of these households will be headed by persons aged 55 or older. They show a low propensity to move, particularly to apartments located in commercial centres. Any demand for apartments is likely to come from younger households. An analysis of the costs of building apartments in activity centres shows that these will cost more than infill in nearby suburban areas. As a consequence those seeking medium density locations are likely to prefer the lifestyle and price competitive option of an infill dwelling.

The preceding analysis shows that the Victorian Government faces severe difficulties in implementing its Melbourne 2030 planning template. There are other fundamental long-term constraints to the implementation of Melbourne 2030 which its authors and advocates do not appear to have come to grips with. Two of these are developed in this chapter. One is the housing preferences of the two main growth points in households numbers which, it is argued below, are incompatible with the kind of dwellings likely to be constructed in activity centres. The other is doubt about whether housing can be built within activity centres at a cost accessible to more than a small minority of the households which the Melbourne 2030 planners hope to attract to activity centres.

HOUSING PREFERENCES

The Melbourne 2030 document is built on the assumption that fundamental changes are in process as regards the composition of households living in Melbourne and their housing preferences. There is some basis for this starting point. Households are getting smaller and the proportion of families composed of couples with children is declining. Property experts often assert that older ‘empty nest’ couples are open to a new life style free of the constraints of the conventional house and garden, which may prompt ‘downsizing’ and ‘downshifting’ once the children leave home. For example, Frank Gelber (2004 p. 48), chief economist at BIS Shrapnel, a leading property services firm, asserts of baby boomers on retirement:

...all of a sudden they have more money and more time ... they spend more on leisure goods and leisure activities on food, restaurants, travel, accommodation ... and so on. ...many will move to more convenient housing without the garden and the lawn that needs mowing.

Gelber goes on to say that they won’t want to live in the poky investment units that they have bought, rather ‘they can use the collateral from their homes to afford better quality, secure, medium-density housing with higher ceilings, bigger rooms, better fixtures and ambience.’

This understanding has become like a mantra repeated across the planning literature and into the broadsheets. For example, The Age (2004) which has supported the Melbourne 2030 blueprint, bases this in part on an alleged ‘social imperative for “empty nesters”’. The reference is to those who ‘would like to remain in suburbs close to their circle of family and friends. For them the option of more compact apartment style living is attractive’.

These views imply that it is reasonable for urban planners to provide opportunities for a more varied housing stock, including a higher proportion of semi-detached and apartment style buildings.

It is also true that during the 1990s Melbourne experienced a boom in flat and apartment construction. One outcome was that the proportion of new dwellings composed of town houses and apartments increased significantly relative to detached houses. Many of these apartments were built in inner Melbourne, suggesting that at least a minority of households are becoming attracted to higher density living in settings where residential, entertainment and commercial activities are intertwined. This 1990s apartment boom is often regarded as evidence of the ‘downshifting’ phenomenon referred to above. According to the influential Victorian State Government report, From Doughnut City to Café Society, which was based on the housing trends of the first half of the 1990s, Melbournians have ceased to turn their back on the inner city. Instead:

The inner city is booming with a new style of immigrant, people from the suburbs, new businesses and entertainment facilities. A new urban culture is emerging, sometimes referred to as a ‘café society’ (Department of Infrastructure 1998 p. 1).

The problem with this reasoning is that innovation in living and housing patterns is usually associated with younger people. This point is acknowledged in From Doughnut City to Café Society (Department of Infrastructure 1998 p. 6). The authors note that ‘there is a popular belief that the people moving into the inner city are “empty nesters” whose children have left home, allowing them the freedom to sell their suburban home and purchase an inner-city apartment in which to enjoy their retirement years’. But the report goes on to make clear that this belief is contrary to reality, for ‘the people repopulating the inner city tend to be young, predominantly 20–29 year olds’.

There are some serious problems in a theory about changing housing tastes which builds on the experience of the 1990s. This is because over the next thirty years there will be no increase in the number of younger households, that is those most likely to favour inner city apartment living. The main influence on housing preferences will be the growing cohorts of households currently aged 30 to 40 and the baby boomers who are approaching retirement.

THE HOUSING RESEARCH UNDERPINNING MELBOURNE 2030

What is the basis of the belief that housing preferences are changing? It is partly an article of faith, built on images of the 1990s such as the Victorian Government’s own Café Society report propagated. But surely there must be some empirical evidence for such a fundamental assumption. The only place where the matter is discussed is in the Melbourne 2030 draft housing plan. The draft statement indicates that: ‘Past patterns of housing consumption and household types give some insight into future trends’ (Department of Infrastructure, 2002 p. 4). It refers to housing data for the period 1991 to1996 in Melbourne and indicates that this shows ‘some dramatic changes in the type of houses we are choosing’.

The statement derives from a background paper commissioned to help lay the intellectual background to the Melbourne 2030 plan. The paper was prepared by the Institute for Social Research at Swinburne University (Burke and Hayward 2000). It is based on an analysis of change in housing patterns in Melbourne between the 1991 and 1996 census dates. This is a valuable report which includes much useful information about the state of Melbourne’s housing market. Nonetheless, there are a number of problems with the data analysis and the conclusions about housing preferences, especially of households without children, which Melbourne 2030 draws from the report.

According to the Institute, there was a sharp increase of 47 per cent over the 1991–1996 period in the number of couples without children living in flats and apartments but only a 14 per cent growth rate in the number of such couples living in detached houses. Even more significant for the Melbourne 2030 planning outlook, the Institute notes that, amongst households aged 45 plus, there was a 16 per cent growth in those living in separate houses, but a 57 per cent increase in those living in flats and apartments. These findings are referred to in the Melbourne 2030 draft housing plan in a manner which implies that they can be taken as evidence that the Melbourne 2030 plan is addressing a genuine change in housing preferences in Melbourne. If the figures were correct, they would imply a shift in housing preferences amongst the family type and age group which is about to increase massively in size over the period to 2030.

Unfortunately there are a number of problems with the Institute’s findings. The first is that the Institute refers to its data as households (and this is repeated in the Melbourne 2030 document) when in fact it is referring to persons aged 25 or older. It states that there was an increase of 146,000 households in Melbourne in the 1991–1996 period, when in fact the reference should be to persons (Department of Infrastructure 2002 p. 4). As the Table 4.1 shows, the actual increase in the number of households in occupied private dwellings in Melbourne between 1991 and 1996 was 91,600. This error may not be crucial, but it implies that caution is required in interpreting the Institute’s findings and it raises questions about the uncritical importance given to them in the Melbourne 2030 documentation.

What is important is that the calculations about trends in housing preferences for older persons (aged 45 or more) are misleading. The Melbourne 2030 summary of the Institute’s work refers only to the data reported on flats and apartments and detached dwellings. However, there is another category of dwelling structure, entitled ‘semi-detached, row or terrace house, townhouse’ by the Australian Bureau of Statistics, also shown in the Institute data. These two categories should be combined if the purpose is to understand whether there is any trend towards medium and high density housing. When this is done, the results show that over the 1991 to 1996 period the growth in persons aged 45-or-older who lived in dwellings other than detached housing was 16.6 per cent. This figure is almost identical with that of the growth rate (16.1 per cent) for persons in this age group living in detached houses (see Table 4.2).

Table 4.1 Number of family, group and lone person households in occupied private dwellings, Melbourne, 1991 and 1996
Australian Bureau of Statistics, Census 1991, Basic Community Profile Table B52; Census1996, Basic Community Profile Table B27

Table 4.2 Number of persons aged 45+ living in couple households with no dependents by structure of dwellings occupied, Melbourne, 1991 and 1996
Table may include non-dependent children aged 45+ and other related individuals aged 45+ living in these couple households.
Calculated from Institute for Social Research data reported in Tables 1-9, pp. 32-33

Thus the only empirical support reported in the Melbourne 2030 document for the expectation that older couples without children will move to medium or high density housing turns out to be without foundation. It remains an open question whether older couple households – even though predominantly childless (empty-nesters) – and lone person households will move in any significant numbers from their house and garden over the period from 2001 to 2030.

HOUSEHOLD PROJECTIONS FOR MELBOURNE

Table 4.3 provides a projection of household growth in Melbourne between 2001 and 2031 by household type and age of household head.1 The projections were prepared by demographers employed by the Victorian Department of Infrastructure. They assume that the tendency for men and women to partner at a later age than was the case in the 1970s and 1980s will continue and that there will some increase in the rate of breakdown of couple partnerships. These trends will contribute to an increase in the numbers of lone person and childless couple households.

THE IMPACT OF AGEING ON HOUSEHOLD GROWTH

However, these changes in the propensity of people to form and break partnerships are not the main source of growth in smaller households. Rather it is due to Melbourne’s distinctive age distribution pattern. The projection shows that 69 per cent of the total increase in the number of households in Melbourne over the period to 2031 will be households headed by persons aged 55 or older. This outcome is a consequence of two circumstances. One is the ageing of the baby boomers. As they enter their 60s and 70s, they will be replacing the far smaller cohort now in this age category who were born before World War 2. This can be seen in Figure 4.1. The figure shows that, as of 2003, the numbers of baby boomers (that is those aged around 45 to 59) are far larger than those aged 60 to 74. As this latter group move on, they will be replaced by a much larger cohort.

Table 4.3 Number of households 2001 and projected number of households 2031 by age of householder, and the projected increase 2001-2031 by type of household and age of householder (percentage), Melbourne
Subsequent projections released in late 2004 revised the growth in households downwards to 626,661 households (Department of Sustainability and Environment 2004). Apart from overstating the expected growth, the revision has little impact on the underlying demographics shown in Table 4.3.
Prepared from Interim Population Projections supplied by the Department of Sustainability and Environment

The other circumstance is that the size of the cohort currently aged 30–39 living in Melbourne is substantially larger than the younger cohorts currently aged in their 20s and teens. As shown in Figure 4.1, the present crop of Melbourne residents aged in their early thirties (the children of the baby boomers) is by far the largest five-year age group amongst current Melbourne residents. This group, along with less numerous but relatively large groups aged 35–39 and 40–44, constituted the main market for the apartment boom of the 1990s (as documented further below). Figure 4.1 shows that the generation to follow, aged 20–24 and 25–29 by 2003, is far smaller than the 30–34 age group. The teenage groups are smaller again. Migration will change this a little, but not enough to stop a significant contraction in the size of the age cohorts entering the peak apartment-dwelling years. The days of significant growth in younger households in Melbourne (which was the case during the 1990s) are over. The longer term implication, shown in Table 4.3, is that between 2001 and 2031 the number of households with household heads aged 15–34 will grow by 34,000 between 2001 and 2031, or just five per cent of the total growth in households of 682,000.

Figure 4.1 Melbourne’s estimated resident population by age group, 2003
Australian Bureau of Statistics, Estimated Resident Population, 2003

The projections detailed in Table 4.3 also show that some 71 per cent of the additional households in Melbourne will be composed of persons who are lone persons and couples without children. Most of these small households will be headed by persons over the age of 55. It can be calculated from Table 4.3 that 78 per cent of the growth in the numbers of couple-without-children households in Melbourne over the 2001 to 2031 period will derive from increases in households headed by persons aged 55 or older, as will 69 per cent of the increase in lone person households. In the majority of these households the reason for the childless state is that the children have left home and that, as a consequence, they have become empty nester households. In the case of the lone persons, most will be in this situation because their partner has died or because there has been a relationship breakdown with a previous partner. Some lone persons will also be empty nesters who were once lone parents.

To reiterate, the widely held assumption that the growth in the share of smaller households is primarily a product of lifestyle changes is not correct. The main reason is the bulge of persons who will be entering the retirement age group over the next 30 years. Most will be empty nesters or singles.

IMPLICATIONS OF HOUSEHOLD PROJECTIONS FOR DWELLING DEMAND

THE 1990s APARTMENT BOOM IS UNLIKELY TO BE REPEATED

Much of the discussion in planning circles about future housing preferences appears to be based on the expectation that the experience of the 1990s will be repeated. As noted, this was an unprecedented era of flat and apartment construction in Melbourne. From this it has been commonly deduced that there was an associated change in housing preferences. Buxton and Tieman (2004 p. 49) note in their recent study of urban consolidation:

The continuing rise in the proportion of multi-unit dwelling developments in total new dwelling approvals demonstrates the substantial nature of changes to dwelling preferences in Metropolitan Melbourne over the past fifteen years.

However, there is no guarantee that this experience will be repeated over the next few decades. First, research on housing preferences in Australia does not substantiate the assertion that there has significant decline in the desirability of detached housing (Wulff et al. 2004, pp. 61–63). There are obvious reasons why older person would be reluctant to leave their detached home. Persons who reach retirement age have a greater, not a lesser, need for space at home since more time is spent at home. There is often a need for room for visiting children and grandchildren. Second, the take up of flats and apartments in Melbourne during the 1990s, especially in inner Melbourne, was by young couples without children and lone person households. But, as indicated in Table 4.3, they constitute only a tiny component of the projected increase in households in Melbourne over the period to 2030.

Figure 4.2 Change in number of private dwellings by dwelling structure, inner, middle and outer Melbourne, 1991–2001
Inner Melbourne is the Statistical Subdivision of Inner Melbourne and comprises the municipalities (or part thereof) identified on the graph.
The middle suburbs comprise the municipalities of Banyule, Bayside, Boroondara, Brimbank, Darebin, Glen Eira, Hobsons Bay, Kingston, ,
Maribyrnong, Maroondah Ringwood, Monash, Moonee Valley, Moreland, , Whitehorse and the Statistical Local Areas of Hume (C) - Broadmeadows,Manningham (C)- West and Stonnington Malvern. The outer is the remaining areas of the Melbourne Statistical Division.
Australian Bureau of Statistics, Census 2001, Time Series, Table T18

The implication of this second point is explored in the following figures. Figure 4.2 shows the location of growth in the occupied housing stock by dwelling structure over the period 1991–2001 in Melbourne for inner Melbourne, middle Melbourne and outer Melbourne (see definitions in the notes accompanying the graph). Inner Melbourne serves as a proxy for activity centres because it embodies the characteristics which are closest to those claimed for future activity centres. It is the one part of Melbourne which most Melburnians would regard as having a lifestyle quite different from the surrounding suburbs on account of its high concentration of medium to high density housing, and its integration of workplace, retail outlets, metropolitan lifestyle and public transport facilities.

In the case of inner Melbourne, the figure confirms that flats, units and apartments were the dominant form of housing construction over this decade. There was a net growth of 19,110 flats and apartments in the area, as well as a small net growth of 1,267 semi-detached row or terrace dwellings. Figure 4.3 provides a good indication of the household type and age of those who occupied these dwellings. It shows that most of the net growth in households in inner Melbourne was amongst couples without children and singles, particularly those in the 25–34 age group. There was little or no increase in the number of households living in inner Melbourne who were couples without children or singles where the household head was aged 55 or older.

Figure 4.3 Household type by age of householders, inner Melbourne, change 1991–2001
Australian Bureau of Statistics Census, 1991 and 2001, customised tables held by Centre for Population and Urban Research

These findings confirm that it is mainly young households without the responsibility of children who are being attracted to apartment living in the inner city. They also suggest that, to the extent that affordable high density housing is constructed in activity centres which can replicate the appeal of inner city living, there is probably a market for these dwellings amongst younger households. But, as indicated, most of the growth in housing demand in Melbourne will be from households currently aged 30 plus. The Melbourne 2030 planners appear to assume that empty nesters will be interested in downshifting from their detached houses to higher density dwellings. However, very few older households moved into inner Melbourne during the 1990s. Indeed, Figure 4.3 indicates that, in the case of singles aged 65–74, there was a significant net drop in their numbers living in inner Melbourne between 1991 and 2001.

DWELLING AND LOCATION PREFERENCES OF HOUSEHOLDS IN MELBOURNE

In order to get a better idea of the extent of movement amongst the residents of Melbourne, customised data sets were prepared which facilitated analysis of the propensity of householders to move over the 1996 to 2001 period by age, household type and dwelling structure. This data set also included information on where those moving relocated.

The findings from this analysis begin with overall movement data. These are shown in Table 4.4. The table shows that there is an inverse relationship between age and propensity to move which holds for all household types. For example, amongst households composed of couples without children, 83 per cent of those headed by a person aged 25–34 moved during the 1996–2001 period, compared with 17 per cent of these households where the household head was aged 65–74. This finding is a major challenge for the Melbourne 2030 advocates. They believe that empty nest households are interested in moving. Yet this expectation is not supported by the 1996–2001 experience. Older couples without children and single persons show a relatively low propensity to move.

Table 4.4 Propensity of households to move, by age of reference person and household type, households where reference person reported in 2001 that they had lived in Melbourne in 1996
Movement was to any other address within Australia and includes moves within Melbourne. It does not include those who moved overseas as they were not counted in the 2001 Census.
Australian Bureau of Statistics, Census 2001, customised matrix held by the Centre for Population and Urban Research

Nonetheless, Table 4.4 does indicate that 23 per cent of all households where the household head is aged 55–64, and 17 per cent of those aged 65–74, shifted over this five year period. Though a minority, if most were prepared to shift to activity centre locations, the numbers would be significant.

Table 4.5 begins the exploration of this issue. It looks at household reference persons who reported in 2001 that they had lived at a different address in 1996. It differentiates them by their age and by where they had lived in 1996 (inner, middle or outer suburb) and shows where they had moved to by 2001. It must be emphasised that the table only refers to movers. As indicated, the majority of households, especially those in the older age categories, did not move during 1996–2001.

Table 4.5 Destination (residence in 2001) of householders who lived in Melbourne in 1996 and changed residence between 1996 and 2001, by age of household reference person and zone of Melbourne residence in 1996
SLA = Statistical Local Area.
Inner = Melbourne, Port Phillip, Yarra and Stonnington Prahran.
Middle = Hobsons Bay, Maribyrnong, Moonee Valley, Brimbank, Hume Broadmeadows, Moreland, Darebin, Banyule, Boroondara, Manningham West, Whitehorse, Monash, Maroondah Ringwood, Kingston, Glen Eira, Stonnington Malvern, Bayside.
Outer = all other SLAs in the metropolitan area.
Australian Bureau of Statistics, Census 2001, customised matrix held by the Centre for Population and Urban Research

Table 4.5 shows that those who lived in inner Melbourne in 1996 and had moved by 2001 have a reasonably high propensity to stay in inner Melbourne (20 per cent in the same Statistical Local Area (SLA) and 18 per cent elsewhere in the inner area). In the case of those who lived in middle Melbourne and moved during 1996 to 2001, a key finding is that only a small proportion (seven per cent) moved to inner Melbourne. By far the highest propensity to make such a move is amongst younger households – especially those where the household head is aged 15–24 or 25–34. For movers where the household head was aged 35 or older, most stay in their SLA or move elsewhere within middle Melbourne. Surprisingly, the proportion moving to outer Melbourne does not vary much by age of household head. Some 19 per cent of 25–34 year old households moved from middle Melbourne to outer Melbourne, compared with 20 per cent of movers amongst the 55–64 age group. This is surprising because it might be expected that young households would have the highest propensity to move to the fringe. Again, it must be remembered that a far higher proportion of the younger households moved. As the right hand column of the table shows, 75 per cent of households where the reference person was aged 25-34 and lived in middle Melbourne in 1996 had moved by 2001, compared with 22 per cent of households where the reference person was aged 55–64.

These findings do not support the optimists who believe that older empty nesters are primed to discard the ties of the detached house. If inner Melbourne can be regarded as an indicator of the attractions of high and medium density housing in principal or major activity centres, the findings confirm that it is only amongst younger households that this attraction appears to be compelling.

WOULD HOUSEHOLDS MOVE IF MEDIUM DENSITY HOUSING WAS PROVIDED LOCALLY?

An alternative possibility is that older households may be attracted to the downsizing option if medium density housing were available in a suburban setting near their current residence. Interviews conducted with municipal council planning officers across Melbourne indicate that many of these officials think that households in the 55-plus age bracket may be attracted to such ‘neighbourhood’ style housing. This would not involve the radical change of moving into a large activity centre. The attractions include the maintenance of associations with friends, family and local services such as doctors and institutions like bowling clubs. Such housing could be provided through infill or the development of neighbourhood activity centres.

The former Minister for Planning, Mary Delahunty often expressed the view that households would like to downsize, though in her case the reference was usually to the alleged attractions of living in a major activity centre. According to the Minister, Melbourne 2030 will have the great virtue of:

Giving people the opportunity to work, shop and play in urban centres close to home means a better lifestyle. It will also help us to provide the sort of housing choices that people want. Our population is ageing and changing and with it our housing needs (Delahunty, 2004).

Table 4.6 shows that, for older households (that is those where the reference person was aged 55 or older) who relocated between 1996 and 2001, about 29 per cent moved within the same SLA. Less than half of the 29 per cent who made this local move shifted to a semi-detached house or flat. Most of the older households who moved (51 per cent) shifted to somewhere else in Melbourne, and again, a majority (29 out of the 51 per cent) moved to a separate house rather than to a semi-detached house or flat. One qualification to this conclusion is that the Australian Bureau of Statistics defines dwellings located on dual occupancy sites as detached houses if they do not share any common walls (see Chapter Five for a discussion of the scale of this definitional problem).

Table 4.6 Where relocating households moved to and structure of dwelling in 2001, reference persons who lived in Melbourne in 1996 and who were aged 15–34, 35–54 and 55+ in 2001
* ‘Other’ includes other structures (such as house or flat attached to a shop, or a caravan or boat) and not stated.
Australian Bureau of Statistics, Census 2001, customised matrix held by Centre for Population and Urban Research

DO OLDER PEOPLE WANT TO MOVE AT ALL?

Debate on issues about the movement of older people is dominated by commentators who think about possible movements of empty nesters from the point of view of the professional and managerial middle class. Frank Gelber, quoted earlier, is a good example. His comment about downsizing referred to people who own valuable inner suburban property and have cosmopolitan tastes. For such persons, the sale of a detached house and a move to an apartment surrounded by restaurants and theatres in a busy activity centre may be appealing. For most baby boomers this is an unreal prospect. For such people, the house and garden with neighbours, family and nearby clubs and activities prescribe their daily world. As they approach retirement, this world becomes more rather than less important. The leisure activities they enjoy tend to be based on what they can do in their house and garden and in the nearby community. As Table 4.5 shows, only a small proportion of older householders actually move, and of those who lived in the middle and outer areas of Melbourne in 1996 who did move by 2001, only a tiny fraction moved to inner Melbourne.

The Productivity Commission modelled the likelihood of households moving by age. It found that the effect of an ageing population was to decrease the number of houses sales (Productivity Commission 2004 p. 18). It notes that this was a factor considered by several states and the Victorian Government acknowledged that the impact of ageing on house sales was likely to reduce stamp duty:

The projected decline in revenue ... arises because population ageing is expected to reduce both the rate of housing turnover and dwelling investment over the next few decades. This arises as retirees are less likely to move house and there is a smaller share of young families in the population buying houses. These effects are expected to more than offset falling average household size (Victorian Government (sub. 29, p. 37) cited in Productivity Commission 2004 p. 18).

This comment is in sharp contrast with the underlying assumptions embodied in the Bracks Government planning documents.

These findings have been confirmed by opinion surveys. For example, a national survey of 750 Australians aged 30–69 years in mid-2001 found that downsizing was only part of the plans of a minority – only one in six (17 per cent) intended to sell the family home as part of their retirement plans (Cameron 2001 p. 11).

In one of the few pieces of local opinion research in this area, in July 2003 the City of Bayside commissioned a survey of the housing choices of its residents aged 65 or older. Some 195 responded. The respondents were asked about their movement intentions. (Sixty per cent lived in a separate house.) All but four per cent declared that they will either remain living where they were for the remainder of their life or they will move only if their health deteriorates significantly. Most acknowledged that they would move in this latter circumstance. But the vast majority of older persons only reach the frail stage, which might require movement to a hostel or a nursing home, by the time they reach their late 70s (Birrell and Rapson 2000 p. 13). The Bayside findings are significant because the high price of detached housing in the area indicates that older residents in this municipality have the financial capacity to move if they wanted to (Byth 2003). Their intention to stay where they are, despite this capacity, runs counter to the expectation of high density advocates, since if there is a genuine interest in alternative housing amongst empty nesters, older residents in places like Bayside should be amongst the first to take up the option.

FINANCIAL CONSTRAINTS LIMITING HOUSEHOLD MOVEMENT

For households not living in high priced inner-suburban neighbourhoods who have a yen to downsize to apartment living, there are serious financial constraints. Table 4.7 lays the initial groundwork for considering these constraints. It is highly unlikely any couple or individual would make a move from a detached house if the apartment or townhouse they have in mind is so expensive that the transaction would leave them out-of-pocket. Yet for many this would be the case.

Table 4.7 shows the median price of detached houses and other residential dwellings (which include flats, apartments and semi-detached houses such as row, terrace and townhouses) in 2003 by municipality in Melbourne. Apart from those located in inner Melbourne, most of the other residential dwellings would have been constructed as infill and thus are not comparable with the dwellings likely to be built as part of the high density activity centres proposed under Melbourne 2030. As indicated shortly, these will be more expensive than infill dwellings. Nonetheless, the table shows that, aside from in a handful of municipalities in and around inner Melbourne, a person contemplating selling a detached house and moving into an apartment or semi-detached dwelling in the same municipality would have very little of the cash gained from the sale left after paying for the apartment and the associated transaction costs. Though not shown in the table, this point applies to both semi-detached dwellings and apartments, except in inner Melbourne. Thus, even if there is a predisposition to move, the financial costs associated are likely to diminish the original interest.

Table 4.7 Median price of houses, flats and apartments and balance retained after costs if buy and sell in same municipality, 2003
* After buying and selling costs including stamp duty, agent 2.5% of selling price, plus $2,000, moving, legal costs and so on)
Department of Sustainability & Environment, A Guide to Property Values 2003

This assessment applies even in middle Melbourne areas like Whitehorse and much of Kingston and Monash where the detached houses built in the 1950s and 1960s are set on large blocks. The reason is that such houses tend to be relatively small and outmoded in internal appointments and appearance. The newer apartments and semi-detached dwellings often sell for as much as, or more than, nearby houses because of their modern style and interior appointments, as well as lower maintenance costs. This point is made in the Housing Study prepared for Whitehorse municipality which notes that a comparison of detached dwellings and other dwelling types within the same area revealed that ‘new units command far higher prices than existing detached dwellings’ (City of Whitehorse 2002 p. 19).

APARTMENT COSTS IN ACTIVITY CENTRES

This point is magnified when the costs of apartments built in principal and major activity centres are considered. Apartments in such centres are likely to be three or more storeys high and to require lifts. The building services firm Rider Hunt has estimated that the selling price, based on the development costs current in late 2004, of a new two-bedroom apartment in a five to six storey building in the middle suburbs would be in the range of $401,500 to $479, 600 (see Table 4.8). The selling price of a new three-bedroom apartment would start at $544,500. This price will not vary much by location. In other words, people thinking of moving into an apartment in an activity centre in Clayton will pay almost as much as those planning to move into an apartment built in Glenferrie or Bay Street, Brighton.

Table 4.8 Expected sale price ($) of one, two or three bedroom apartments, middle to outer suburbs, Melbourne, late 2004
Costs are based on the current construction costs for a five to six storey apartment complex comprising 30 apartments with car parking for 50 cars. A variance of ± 10% anticipated on the development costs nominate due to land costs and size, site specific costs, planning variables, design efficiencies, development risk and the like. Prices are based on a medium quality development located in the middle suburbs. Prices do not include stamp duty, legal fees, finance costs and removalist expenses of the purchaser.

Source: Prepared for the Centre for Population and Urban Research by Rider Hunt Melbourne Pty Ltd

The main reason for these high selling prices is the high construction costs of high rise buildings. These include the higher costs of providing water, sewerage and other building services for high rise dwellings, the necessity to provide specialist building equipment in a congested area and higher labour costs. Work conducted on such ‘commercial’ sites normally involves union labour. This means much higher rates of pay and restrictive work conditions compared with non-unionised sites. The building unions in Victoria have won very generous wages and conditions relative to other states in Australia and to their non-unionised counterparts in Victoria. Rider Hunt (2004) estimates that the building costs of high rise apartments (about $2,050-2,550 per square metre for a floor area of 90 to 120m2) are double those for a single or double storey custom-built dwelling (around $1,100 – 1,800 per square metre).

These calculations help explain the widespread scepticism amongst developers that activity centres will accomplish anything like the role of absorbing Melbourne’s extra households mooted in the Melbourne 2030 document. The only locations where such dwellings appear feasible are within the more attractive inner suburban areas. In these circumstances, developers can tap into a market from local residents who can sell their existing detached house for a sum well above the price of an apartment built in a nearby activity centre such as Burke Road Camberwell or Glenferrie Road Hawthorn.

Sceptics also quote the experience of the Doncaster Hill precinct which has been zoned for high-rise apartment living within the Manningham Planning Scheme. Currently, some of the projects planned for the precinct have stalled. Developers have been unable to obtain the necessary bank finance because they cannot sell sufficient units off-the-plan. Another illustration is the scaling back of the East Hawthorn Australand development on the corner of Monash Freeway and Toorak Road. Australand held a permit for 300 apartments in a building up to eight storeys in height. Again the high cost of these apartments limited the consumer response, forcing an adjustment of the project to just 90 townhouses.

IMPLICATIONS

The analysis reported here exposes some serious weaknesses in the assumptions underlying Melbourne 2030’s expectation about the dwelling preferences of Melbourne’s expanding population. As a result, the demand for dwellings is likely to be quite different from that assumed by the Melbourne 2030 planners. These dwelling preferences imply further demand for living space on the fringe, as well as continuing demand for infill accommodation within established suburbia. The following chapter details the implications of these demands.

ENDNOTES

1     The projections are based on the expectation of a slight further fall in fertility rates, the maintenance of current high net migration to Australia and a net gain of 5000 per year from interstate migration to Victoria. The household are based on continuation of recent trends in household formation and dissolution. As noted in Table 4.3, these projections have since been revised downwards, though only to a marginal degree. We believe them to offer a plausible projection of likely demographic outcomes for Melbourne.

REFERENCES

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Cite this chapter as: Birrell, B; O’Connor, K; Rapson, V; Healy, E. ‘Demographic constraints’. In: Melbourne 2030: Planning Rhetoric Versus Urban Reality, Monash University ePress, Melbourne, 2005.

Melbourne 2030: Planning Rhetoric Versus Urban Reality

   by Bob Birrell, Kevin O’Connor, Virginia Rapson and Ernest Healy