When observing housing bubbles, one that always seems to be forgotten is the pre-federation Melbourne land boom of the 1880s. This property bubble was considered to be one of Australia’s most influential and damaging. During a period of 6 years (1883 - 1889), Melbourne experienced an incredible boom in property prices and land speculation. As mentioned by an article by the Melbourne Argus in 1887, The people of Victoria were driven not by a dream, but by an awakening to the value of land as a safe, sound, and profitable investment. This same article named this craze: 'The Earth Hunger’. To further finance this awakening, these people borrowed enormous amounts from the bank, with almost no security required, much like the USA housing bubble in the mid-2000s.
The allure of new roads, railways, tramways, new construction projects such as office buildings, free railway passes and lunches offered prior to auction further fuelled this bubble. Even Victoria’s political elite were heavily involved in propping up the bubble, by owning financial institutions like “land banks”, which were banks that provided loans to those who wished to purchase land, thereby bolstering land speculation. Many people who invested in these parcels of land were gold-rush immigrants who began their journey as simple labourers. However, as the boom drew to a close, these labourers ended up possessing a web of land banks and building societies all with the goal of continually profiting off the desire for land.
During this time, Melbourne’s population had also doubled to half-a-million from the previous decade, with the city expanding to compare to even the largest of Europe’s capital cities. This boom caused office buildings in Melbourne to reach the skies and rival those seen in New York, London, and Chicago at the time. Money was being poured into all facets of the city, from hotels to banks. It was no wonder that visitors to Melbourne during this time were often left amazed and bewildered. However, as described by Museums Victoria - “cities like Sydney were seen to be growing slowly and steadily, Melbourne could best be described as fast and reckless.”
A few great examples of this boom can be seen below, with the Sandringham Estate and West Brunswick. Both of these posters encapsulate the abundance of land available during this time period, with much of the posters available space dedicated to which lots of lands were on auction and what was for sale. The posters also did well to highlight their close proximity to amenities like railway stations, shops, and parks. To put the £10 deposit for a lot in Brunswick into context, minimum wage was introduced 1907 (almost 30 years after the boom), and at that time, the ‘living wage’ (or minimum wage) was 7 shillings per day, or 42 shillings per week. One Australian pound comprised of 20 shillings, therefore, 200 shillings (or about 5 weeks) of work was required to afford the £10 (note: as there was no minimum wage in 1880, the closest reference is the Factory and Shops Act 1890, which stated that factory or workroom workers in the colony of Victoria would expect a minimum wage of 2 shillings and 6 pence a week)
State Library of Victoria: Troedel & Co., lithographer, The Sandringham Estate, Picnic Point Brighton, Melbourne, Troedel & Co., 1886, Batten and Percy Collection, MAPEF 912.945 B32
Moreland Road, The Land of Promise, West Brunswick, close to Essendon, 1888
Dyer collection of auctioneers' plans, Melbourne and suburbs State Library of Victoria
However big the boom became, the crash that followed was, arguably, even bigger. The crash of this boom in the early 1890s became one of Australia’s most damaging housing and property bubble collapses, with many people losing not only their political reputations but their income and even their lives. Land values in Melbourne dropped about 50% of their value during the boom, with average property values in suburbs like Brighton falling to about £300 in 1898 from £950 in 1888. In a period of two years (1891 - 1893), 54 financial institutions had closed their doors, with 60% of these institutions closing permanently. Even the Federal Bank of Australia underwent liquidation in 1893.
This crash not only affected the colony of Victoria but also created a depression that was rippled toward the other colonies of Australia as well. This economic collapse crippled Melbourne for many decades, it was not until well after World War 1 that property prices began to recover.
Those who had built and established their empires during this boom did not go without a fight. Many of these creditors stared bankruptcy in the face during the crash, however, arrangements were made in secret for them to avoid being labeled as bankrupt and allowed them to continue operating other businesses that they had established. These arrangements also permitted creditors to be paid a small fraction of the sums that they had invested in this boom.
These days, as prices continue to surge toward 2017’s record highs and beyond, it's always insightful to look back through Australia’s rich real estate history to observe past property bubbles and how they affected Australia then. Many sources in today’s media seem to conveniently forget that Australia has experienced property bubbles in the past, with many under the impression that the property market doesn’t work in a cyclical fashion. If there’s one thing that presents itself from decades and decades of past data on the property market, it’s that the market operates in a long-term cyclical fashion.
Sources: Australian Broadcast Corporation | Museums Victoria | The Sydney Morning Herald | Museums Victoria - Marvellous Melbourne | Australian Financial Review
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