This article was first published b
SYDNEY, Australia — One hundred twenty-five years ago, the suburb of Balmain, which juts into Sydney Harbor, represented the aspirations of a young Australia: a society that wanted to be free of the class structure of its mother nation, Britain, with a safety net that would make it one of the most egalitarian countries on earth.
Today, Balmain epitomizes the unexpected conclusion of that political and economic project: a nation where rampant property prices have made society appear richer while leaving it worse off.
Australia is entering the third decade of a real estate boom that has altered the national psyche. Over the past 30 years, housing prices have risen 7.25 percent a year, leaving the country with some of the most expensive real estate in the world. In the third quarter of this year, real estate prices in major cities rose 11.2 percent on an annualized basis, dashing some experts’ predictions that they were starting to taper.
Not even in San Francisco, the most expensive metropolitan area in the United States, have prices grown so fast. Prices there have risen about 6.5 percent a year since 1986, and that’s in a city at the center of the global tech industry.
Deregulation of the financial markets in the 1980s and 1990s made credit more available, leading Australians to borrow more for housing, which drove up prices. The market has surged ever since; it even avoided a crash during the Great Recession. Good middle-class family houses in the most popular Sydney suburbs are hard to find for less than $1.5 million.
In Sydney, the epicenter of the boom, few suburbs have changed as much as Balmain, where a group of trade unionists in 1891 agreed to form a political organization that was a forerunner to the Australian Labor Party.
In the late 1890s, Balmain was home to the country’s biggest industrial employer, a shipyard that built and refitted the boats that carried wool to the rest of the world. There was also a coal mine and a soap factory providing hundreds of jobs for the working class. The workers rented wooden cottages with corrugated-iron roofs and walked to their jobs. Social life was centered on the suburb’s many pubs and churches.
The rising property values of the last 30 years extinguished economic diversity in Balmain, which is now filled with Sydney’s elite: lawyers, doctors and bankers who built or bought spectacular houses with views over one of the world’s great harbors. The old power station may be converted into offices for Google.
Fergus Fricke purchased a house in Balmain in 1974 for about $30,000, which was about twice his annual salary. It is now worth about $1.9 million, 31 times his annual pension.
He’s rich, but dispirited. Mr. Fricke’s property wealth provides him with no extra emotional or material comfort. He would prefer to live in a more egalitarian community — the kind of society that once defined Australian identity. “It’s a wealthy population,” said Mr. Fricke, 75, a former engineering professor. “A working-class person can’t afford even the rents in Balmain.”
Feeling prosperous because of their unexpected jump in wealth, landowning Australians have become politically complacent. The great social movements centered on inequality — workers’ rights, the place of women in society and the treatment of indigenous peoples — that influenced Australian politics in the 1970s and 1980s have faded.
Australia’s broad welfare system and high taxes ensure that those who don’t own homes have decent medical care and access to state-run schools and colleges. Few homeless people are visible on the streets. Following and predicting interest rates have become the national pastime.
Higher property prices entrench the advantages of the wealthy. Australia has never been a more unequal society, social researchers say. Income of the top 5 percent of earners rose 78 percent from 1995 to 2012, while income of the bottom 20 percent rose 44 percent, according to a study last year by the Australian Council of Social Service, an advocacy group.
Among the 48 percent of Australians who don’t own homes, women over 50 years old are the most vulnerable. When the researchers Susan Thompson and Peter Phibbs interviewed renters for a study a few years ago, they found the cost of property was contributing to malnutrition.
Elderly women, who are more likely to rent because lower wages meant they couldn’t save as much as men throughout their lives, were paying their landlords first and utilities second and buying food last. “They were eating slices of white bread with all they could find on the last few days before pension day,” Mr. Phibbs said to me this month. “That’s depressing in a rich society.”
Yet Australia’s establishment celebrates high house prices as a symbol of national prosperity and economic success. A Labor Party proposal during the general election this year for a modest trim in generous tax breaks for property investors was assailed by the governing center-right coalition.
The policy gave Prime Minister Malcolm Turnbull one of his most effective attacks of the campaign — a line that reached deep into the new Australian psyche. “The changes Labor is proposing will devalue every home in Australia,” he said.
The rich and powerful have benefited most from the property boom and tax breaks that elevate prices. That includes the prime minister, a former Goldman Sachs partner, and his wife, Lucy Turnbull, a former lord mayor of Sydney, who stand at the apex of Australia’s property market.
They’ve chosen to live in their harborside mansion rather than move to the smaller official government residence in a slightly less exclusive suburb.