Outside an unrenovated, double-fronted weatherboard home in Mackay Street, Prahran, the street and footpath are packed. There are young families trying to contain their wandering toddlers, heavily pregnant mums wilting in the blustery heat and parents in spookily matching crisp pink and white hovering near their adult children dispensing calm. It's 9.15am on the last Saturday in October and we're about to observe Melbourne's housing boom in action at the very moment that scarcity collides with desire and settles upon a price.
A young couple stands near the front gate looking like they're longing for the next stage of their life to begin. Asked if they're planning to bid, the heavily pregnant woman nods but refuses to talk further. "I don't want to reveal our strategy in front of everyone. Talk to us after the auction," she hisses.
Not all bidders are so coy. David Barrington and his wife, Anna, live in the next street and are cheerily open about their life plans and real-estate strategy: buy, do up, sell, move on. They sold their single-fronted house six weeks ago and like the look of Mackay Street. "It'd be our five-year house," Barrington says. "We'd be looking at getting it renovated within 18 months and then moving on. In five years time, we'll be in a house on much more land."
The quote price of $1 million-plus obviously hasn't deterred the man in collar and tie who stomps in, testing the floorboards as he goes. "I'd better have a look at the place beforehand, I suppose," he says, as a well-dressed woman trails behind him, pointing out all the house's good points. The actual buying sounds like a mere formality for him.
"Everything here is within walking distance," says Marshall White director Justin Long, as he starts the auction. "You can walk around to Bistro Thierry for an onion soup and a bottle of wine and not have to worry about driving home." Then the bidding is on. A 30-something man in shorts leaning on a Range Rover offers $1.22 million. A young man in wrinkled polo top and thongs adds another $10,000 then a red-haired man who looks like he's barely finished VCE puts in a bid, his lookalike mum next to him, sheltering from the sun under a tree. Backwards and forwards between six bidders, it only seems to take seconds to reach $1.3 million. The red-haired young man is still there at $1,350,000, the confident businessman at $1,425,000.
Then the bidding pauses and, although Long pleads, there are no more bids. He quickly does his "going, going, gone" and knocks the property down to buyers' advocate Michael Ramsay, who has been bidding on behalf of 50-something empty-nester Bruce Board. The businessman and his wife are moving in from Vermont and want the double-fronted home for the same reasons everyone else wants it. "The standalone house, the scope for off-street parking, the three tram lines, access to the city, no heritage overlays, proximity to the Prahran Market, the northern sunny rear," Bruce Board recites.
The couple plans to rent it out for a year, then knock it down and rebuild. And, no, he didn't think it was cheap either. "We were at the end of what we could pay." Five other bidders with more than $1.3 million to spend missed out on this nice-but-nothing-special house. Neighbourly Barrington, the pregnant couple with the top-secret bidding strategy and the Evans family (see below) didn't even get to bid. There may well have been more of the quietly disappointed among the large crowd.
Mackay Street, Prahran was one of 1205 properties auctioned on that last weekend in October, with a staggering total of $662 million worth of real estate changing hands. That weekend is, traditionally, one of the natural peaks in Melbourne's real-estate cycle that dovetails its marketing campaigns and auctions around football finals, racing carnivals, long weekends and school holidays. Elections are one more thing to juggle and have pushed more auctions onto this coming weekend, another auction peak that slots in four weeks after the Cup weekend.
On the last Saturday in October, however, Melbourne awoke to headlines confirming what many already knew: house prices in the inner city have gone berserk in the past year. The Real Estate Institute of Victoria's statistics on median house prices showed an increase of 13.1 per cent in the year to September 30 and that the average house cost $50,000 more in 2007 than it did in 2006. Except, of course, buyers in the inner suburbs would kill to find a house that was only $50,000 dearer than in 2006. What the detail in the Real Estate Institute of Victoria figures reveals, and what averages so easily disguise, is a tale of two cities: that while the average growth was 13.1 per cent, the inner-city soared while the outer-suburban areas fell or stagnated. All the suburbs that recorded single-figure growth, or worse, a fall in median house prices, were those furthest from the city. They are the suburbs most isolated from transport routes, with residents most affected by rising petrol prices, clogged freeways and train systems struggling to cope. In Belgrave and Berwick, growth was below 1.5 per cent and in Beaconsfield and Broadmeadows, prices actually fell last year to the end of September. These are areas far from inner-city life, and spots where scarcity and desire never connect to send prices surging. In the inner suburbs, however, particularly the inner east and south, house prices soared and 24 suburbs now have median house prices above $1 million, with no sign of slowing. There are the usual blue-chip suspects - Toorak, Brighton, South Yarra and East Melbourne - but others such as Black Rock, Balwyn, Malvern, Hampton, Elwood, Hawthorn and Kew have seen growth rates of between 40 and 98 per cent.
While some of these percentages can be pushed higher by a couple of spectacular sales skewing the figures, they spotlight Melbourne's most sought-after real estate - and it's all in the inner 15 kilometres or along a strip of coast. Either zone one transport access or first-grade beachy lifestyle - all within five minutes of restaurants, cinemas and upmarket shopping strips.
KPMG demographer Bernard Salt says Melbourne's apparent rejection of suburbia indicates a fundamental shift in Melbourne's demography and values that is only likely to continue. He says Melbourne invented suburbia and raised it to an art form in the mid-20th century, but new "life forms" have been turning their backs on it for the best part of 20 years. Those new life forms - "singles, couples, DINKS (double-income, no kids), gays, empty-nesters" - are only interested in living in the inner suburbs, where they compete fiercely for increasingly scarce housing.
"Melbourne is a big, broad circle and the inner circle is always going to be competed for. It's the laws of physics," Salt says. And he doesn't see it changing. "One hundred and fifty years of infrastructure, accessibility and cultural focus have been in central Melbourne" and that's where housing demand, and therefore price rises, will always be concentrated.
It is what real-estate agents, in their slightly less academic way, would call the "funk factor" or, if they were a bit older and not wearing a mauve shirt, "position, position, position".
Salt says generations X and Y are babyboomers' children who have been raised to enjoy and expect a certain lifestyle and don't want to forsake inner-city living just to own a house 30 kilometres from the city. "These groups refuse to move to the suburbs," Salt says. "The world ends at Burke Road and, for purists, it ends on the east side of Glenferrie Road."
Eastern suburbs real-estate agent Richard Earle has no reason to disagree; he says demand is so strong in areas such as Hawthorn that's it's now common for buyers to pay more than $1 million for single-fronted cottages. "Most areas now, it's land value. Properties that were worth $1.2 million a year ago are now going for $1.5 million," the Jellis Craig director says. He says that many buyers who can't afford their dream home in their dream suburb are willing to sacrifice gardens, space and perfection for position. "People are happier to have smaller land around them," he says.
And builders now have plenty of business trying to squash more and more into tiny inner-city homes, if families discover they can't afford to upgrade. Sheds are converted to home offices; bathrooms become third bedrooms and laundries double as bathrooms. Anything to avoid leaving the inner city.
Most of Richard Earle's sales are in the eastern suburbs private-school belt where house prices are driven by a heady mix of access to schools, the tram lines that deliver children to them and period architecture in leafy streets. He says it's a unique mix that Melburnians love, but it also appeals to the thousands of new families who are, according to the Australian Bureau of Statistics, moving to Melbourne each year.
"With that competition in the City of Boroondara, there isn't much under $2 million for a four-bedroom, two-bathroom house now," Earle says.
Like most agents in wealthier suburbs, Earle has witnessed plenty of young couples, aged 30 to 35, buying $2-million houses - so where is all this money coming from? Earle says he isn't privy to buyers' finances but profits from the recent stockmarket boom have certainly found a happy landing spot in the tax-free family home, and clearly some families are helping their adult children, although he acknowledges neither can fully explain the boom or the extraordinary prices some buyers are able to pay. "We're still unsure where the capital is coming from; whether people are borrowing more, receiving family help or a greater percentage of family income is going on the mortgage," he says.
Mortgage broker and director of Alliance Property Finance, Craig Dres, says that while he wrote a $2.5-million mortgage for a Brighton buyer not so long ago, such borrowings are still rare. "Most buyers in their 30s are borrowing way below that but certainly people are borrowing more." The average mortgage of $240,000 would barely buy a half share in a flat in Elwood, but clearly many young buyers are able to drum up much, much more.
On that busy last Saturday in October, Marshall White director John Bongiorno auctioned two houses that sold for well over $2 million to young couples awaiting the birth of their first child and the under-bidders were mostly similar.
And that weekend wasn't an aberration. "No, that's pretty typical of what's happening; young buyers are gearing up to 50 per cent of their income to fund their mortgages." The 12.30 auction at 18 Munro Street, Armadale was another frenzied affair with bidding on the large, rundown Edwardian house opening at $2 million. The main bidders were two young couples - one with a baby due soon, the other with a toddler in the back of the BMW - and an older couple. It eventually sold for $2,932,500 to the couple expecting a baby. The mother-to-be looked about 30.
Bongiorno says most young buyers looking for large family homes in inner suburbs have got a house to sell. "They would have experienced a lot of capital growth in their homes and they're upgrading. Still, it's a quantum leap, borrowing another 'mil'; that's $80,000 a year to find." But, he says, "when you see the bottlenecks on the freeways and the transport problems, it only makes the inner-east more attractive. The pent-up demand out there is incredible."
Three hours after auctioning the Armadale house, Bongiorno parked his Mercedes outside 12 Westgarth Street, Malvern ready to go again, in the firm's second last auction in a long day. Westgarth Street is a well-renovated street lined with plane trees, and where heritage overlays ensure the cream picket fence will always be king.
The house for auction is the middle-ring version of a McMansion, an Edwardian extended up and out. For $2 million-plus you get five bedrooms, study, home theatre, upstairs rumpus room, formal sitting room and large rear living room overlooking a swimming pool. No garage, but you can't have everything. "A beautiful family home," is how agent Rae Tomlinson describes it. "You've got Central Park two minutes that way," she says, gesturing east enthusiastically, "and two minutes the other way and you're at the supermarket. The Gascoigne estate is just a very, very special area."
The street fills with more pregnant couples and young families. Buyers advocate Mal James arrives, as does rival agent Abercromby's Rob Vickers-Willis, who only three hours earlier sold a similar house a few streets away, at 32 Wheatland Road, for $2.61 million.
A young couple sits on the grass near the front fence with their two young daughters; the wife isn't that taken with what's on offer. "It's a bit daggy," she tells her husband. "The back is very '90s."
Near them, Pat Wheller is standing with her children, Paul and Michelle. The pretty Edwardian house belonged to her family for 76 years until they sold it in 1989, at the end of the boom before last, for $290,000, and Pat has returned to watch her grandmother's old home being sold again for only the third time in its history. The morning's papers show that house prices have risen 97.9 per cent in Malvern and 51.2 per cent in East Malvern.
The first might be explained by the average-inflating $18 million sale of nearby Stonnington Mansion, but the crowd lining the street shows plenty of interest in this pocket of Malvern East. Pat can't quite believe the quote price or the changes to the house. When she was a girl, the house had an outside toilet, no phone and a rear lane for the night-soil man. And Malvern East was nice enough, but not that special.
John Bongiorno gets the auction underway, calling for bids at $2 million. Soon two buyers are locked in a tussle, backwards and forwards in $10,000 bids between yet another young pregnant couple and buyer's advocate Mal James bidding on behalf of a young family. Bidding quickly reaches $2.5 million and within a minute or so, Bongiorno has knocked the property down to a young couple who've returned to Melbourne after five years in the UK. Bolstered by years of earning sterling, they've just paid $2.65 million for the house, with only weeks to go until their first child arrives.
That's nearly 10 times the price it sold for less than 20 years ago - an incomprehensible rise if you haven't been paying attention to real estate prices. But it's further evidence that Melbourne is now a city divided, at least when it comes to housing values.
"The quality of housing stock is markedly different in the inner 15 kilometres compared with the outer suburbs," says Bernard Salt. "You can't buy the Armadale or Malvern streetscape further out." For many, unfortunately, it's a realisation that's come too late.
What's caused the boom?
A mix of relatively low (if rising) interest rates, higher borrowing, a stable economy, low unemployment, an influx of people into Melbourne and the retreat from the outer suburbs as petrol prices bite. There are plenty of Perth buyers and expat workers in London, New York and Hong Kong, looking to invest in Melbourne's "affordable" real estate. Savvy buyers believe that the inner city will give them greater capital growth than a McMansion in the outer suburbs. And more people want to live where more things are happening.
In the thick of it
The sellers
Neil and Emma Hodgson paid $352,000 for 5 Shaw Street, Richmond at the end of 2001, renovated it during 2002 and sold it in early October for $836,000. The two-bedroom weatherboard home was inspected by 108 groups in three weeks of marketing and attracted five bidders. The couple spent "a lot of money" preparing the house - painting, decking, landscaping, furnishing the house for auction and taking on four months of the mortgage payments after giving the tenants notice. "We're probably the most reluctant sellers ever. We lived in that house all through the renovation; the toilet moved several times. We outgrew the house, though; we had a small child and planned another."
The hunters
Marita and Nigel Evans have been looking for a "family home" for them and their sons, Rupert and Henry, for a year. They sold their North Fitzroy house last November and have been renting ever since. They were keen on 17 Mackay Street, Prahran, which was auctioned at the end of October but weren't in the race. The unrenovated, double-fronted weatherboard home was quoted at $1-million-plus and sold for $1,455,000 after an opening bid of $1.2 million and a six-way bidding duel.
"It has got harder and harder as the year has gone on," says Marita. "Prices have just skyrocketed and we've been the under-bidder at five auctions - and that's really hard. We've been looking in Brighton, Brighton East, Elsternwick, Bentleigh and McKinnon. We've sort of lost focus ... It's hard to not keep looking but it's hard doing it with two children. I do a lot of looking on the internet."
We've thought about getting a buyers' advocate but we have a negative view of them, really, that they are pushing prices up and setting new benchmarks. "When we bought our first house in 2004, it wasn't like this. You knew you'd be able to count on it being 10 per cent above the quote price; that was the rule of thumb then but now 40 per cent is quite common. When they're quoting $1 million, you have to be thinking it'll start at $1.2 million at least. I'm not sure how we'll buy; we'll keep looking. It's hard to not keep looking but it's hard doing it with two children. I do a lot of looking on the internet."
The buyers
Rachel and Gary Lewarne paid $1,025,000 for this weatherboard house at 2 Fairbank Road, Bentleigh, in late September. Fairbank Road is near the corner of South and Jasper roads in Bentleigh and the house was sold two years ago for less than $700,000.
"We came in July from Perth but we'd been looking on the internet for some time; we'd done a lot of research on the computer," says Rachel. "Originally, we wanted inner city, Richmond, Fitzroy and Carlton but we looked around and realised we wanted more space and the lifestyle. We saw this house, loved it and had to have it ... Compared with Perth, to be that near the coast (the cost) would be a fraction higher.
"There were two other really keen bidders right there at the end but we weren't going to miss out. Our friends were all amazed. It was actually the first auction we'd been to.
"My house is now worth $1.5 million. Is this good?
If you sell it, and pay back what's left of your mortgage, where were you planning to live? If you plan to use your increased equity to buy a better house, ponder the repayments. Upgrading by $500,000 will add $800 a week to your mortgage. If you're trading in the same market, beware of selling first; there are plenty of tales of people who sold a year ago and, unable to find anything to buy, have watched their buying power fall by 15-20 per cent. If you're downgrading, you're in a great position, but people who left the city for a tree-change and want to come back have found it's a one-way trip.
When will the boom end?
Or, putting it another way, should I wait until there's a crash so I can pick up a cute house in Middle Park for $210,000? Oh, you counter-cyclical types, always looking for a grey cloud in a blue sky. When booms end, they often end with a whimper not a bang and, historically, Melbourne's growth slows or plateaus. The last time a Middle Park terrace was $210,000 was about 20 years ago.
