Our feature story ‘How Close?’ outlines our findings with regard to the affects of public housing on surrounding real estate. We focus on the suburb of Richmond – revealing some interesting findings. Also included for the first time in this edition is our exclusive Buy vs Rent ratio.
How Close? How Proximity to Public Housing Affects House Prices
Melbourne’s 1950’s and 60’s: a time of great change in post-war Australia.
Local governments were faced with mass immigration and sub standard living conditions in many of Melbourne’s inner city suburbs. High-rise public housing provided a viable solution at the time. Many Melbourne terraces spanning entire blocks were bulldozed and cleared, making way for the large towers that now loom over our vibrant inner city communities.
Public housing such as those found in Flemington make up a staggering 31.2% of the total dwellings in that area alone. Other suburbs such as Collingwood (28.9%) and Fitzroy (19.6%) also feature a high proportion of public housing within the total housing supply.
Culturally, public housing has always been controversial, especially in inner city areas. However, it is true that this ‘special mix’ of inhabitants – those that live in private housing and those that live in public housing – has helped create vibrant and edgy suburbs that are far from boring and have therefore become increasingly desirable places to live.
A casual walk down Gertrude Street in Fitzroy can provide a fitting showcase of an emerging location that has benefited from this ‘special mix.’ It must be said that East Melbourne, which is devoid of public housing, cannot seem to create the lively food culture of its less upmarket cousins close by – some key social and economic factors must be at play.
One theory is that creatives and young entrepreneurs gravitate to where rental prices and living are cheapest. This helps create areas that are hot beds of creativity, which in turn helps to transform these areas into communities that are highly prized to live in.
At Secret Agent, we wanted to answer very simple question – how do property prices change with a house’s proximity to public housing?
Our study focuses on Richmond. The housing estate (pictured) has a large presence in Richmond, spanning an entire block. We picked Richmond for it’s high turnover rate of property sales and density of public housing within a confined area.
Flemington and North Melbourne were also tested and showed similar findings, albeit from a smaller sample size of data.
The period of data collection for Richmond is January 1st, 2008 to September 19th, 2012, with a time span of approximately 4.5 years of property prices.
Richmond experienced 1116 house sales during the above period. Secret Agent honed in on all property sales within a 400m radius of the public housing estate in Richmond. We’ve then broken the property sales down, to those within 0 – 100m, 101 – 200m, 201 – 300m and 301 – 400m of the Elizabeth Street complex.
The primary observation is that there appears to be a general trend of increasing average and median house prices as the distance from the Richmond Housing Commission increases. The standard deviation from the mean (average) also generally increases, with a slight dip in the 101m – 200m range. A wide standard deviation would mean that whilst you might expect to pay the mean price in a range, the chances of this are unlikely due to the high variation and spread in the observations, whereas a small standard deviation would mean you are more likely to purchase a property for a price close to the mean amount.
The correlation between each 100m range and prices is positive at 0.3085 from the full data, which is a medium to strong correlation. The trend line in the scatter graph has a gradient of 721.04, which suggests an average increase of $72,104 in price for every 100m increase.
The numbers in the graph represent the value when intersected with the y-axis; what is interesting is how close these values are to the actual means of each respective group. This in turn could suggest, when we compare the correlation coefficient, mean prices and trend line, that distances from housing commissions do affect prices.
To further experiment, we divided the data into two groups, one within the first 200m (Group 1) and one within the next 200m of the housing commissions (Group 2). Conducting a statistical null hypothesis test for a difference between the two groups, we found that the average price of houses in Group 1 (closer to public housing) to be less than that of Group 2 – those sales located further away.
From the data gathered, there appears to be a strong correlation between the attraction/repulsion of housing commission and property prices.
The next step would be to consider housing style, land size and density of public housing as specific categories that could be explored by us here at Secret Agent.
While observing the scatter graph, another thought crossed our minds. Say you wanted to renovate a property, with the goal of achieving the greatest return on investment. Would it be wiser to purchase a more affordable property, closer to the housing commissions, and renovate, or “buy in” at a higher price, further away? Our findings would suggest the latter, with a smaller mean and standard deviation closer to the housing commission, and a higher mean – albeit with a higher standard deviation – further away. The highest possible pay off for home investment would seem to exist in the residences that are based further from public housing.
However, Secret Agent also notes the recent sale of 263 Holden Street, North Fitzroy. Opposite a low rise/low density public housing facility, the property was a good singular example of the density of public housing being a strong contributor to value. Quoted between $1,250,000 – $1,375,000, the property performed beyond the strongest optimist’s expectation, setting a record with a final sale price of $1,845,000.
This suggests that there are shade of greys in these findings. In short, every area is unique and has its own set of rules. Sometimes, if someone loves a home, they will put to one side what the market might deem as a ‘negative,’ and do whatever it takes to make it theirs.