Does public housing keep the buyers away?

The question of whether high-density public or affordable housing has a negative impact on property values is an issue raised at times in Melbourne's planning debates. In answering it you learn a lot about the city and how it's changing.

When viewed through the prism of house prices, the divide between Melbourne's rich and poor used to be clear with the most expensive housing in the east and south-east, but this is less and less the case as the inner city, especially the inner north becomes gentrified.

The inner city has gentrified over the past two decades with industry moving out and replaced by apartments and the ever-present cafes - many of which are in old factories themselves. This has led to an increasing prevalence of high-end modern developments requiring professional incomes being co-located with publicly provided or subsidised accommodation.

If you stand in Johnson Street, Gertrude Street or on Racecourse Road this is obvious to the naked eye.

Recent Socio-Economic Indexes for Areas (SEIFA) data released by the Australian Bureau of Statistics brings this into sharp relief when contrasted with sale prices for houses.

For those unfamiliar with the data, a SEIFA score in excess of 1000 denotes a suburb whose residents have a socio-economic status that is statistically above average. When it is plotted against the median prices houses sold for over the past year the outcome - in all bar a few suburbs - is unsurprising but quite illuminating. The higher the SEIFA score the higher the property values with East Melbourne at one end and Frankston North at the other. Toorak misses out because of the high number of older flats along the main roads.

What is interesting is the five outliers. They show how the old divide is less pronounced now.

They have a lower than average SEIFA and above average house prices. The five suburbs; Carlton, Collingwood, Fitzroy, Flemington and North Melbourne are all within the top 10 suburbs in Victoria ranked by proportion of public housing. They have a large number of people living in publicly provided housing, most notably in the high rises. These dwellings stand tall and in stark contrast to the terraces and apartments invariably located across the road.

Median house prices in those suburbs range from $725,000 in Flemington to $923,000 in Carlton while their SEIFA scores are between 892 in Flemington and 990 in North Melbourne. This means little until you look at house prices in suburbs with similar SEIFA scores. Albion in the west has the same SEIFA as Flemington but its house prices are half as much. Noble Park North in the outer east has the same SEIFA as Collingwood but with house prices slightly more than half that.

Clearly the location of the public housing has not stopped the other parts of these suburbs under private ownership from gentrifying. This is because, like most matters real estate, it's all about the location.

The high housing prices are driven by the scarce and now in high demand inner city land. These high land values are the catalyst for the transformation of these suburbs with medium density accommodation becoming financially viable for developers and in demand from people wanting to live close to work. In just one year, 2011, the population of Flemington increased by 4.3 per cent, in North Melbourne by 3.8 per cent and 1.6 per cent in Carlton. These population increases don't come from public housing tenants, they are owner occupiers and renters in the private market. The intermingling of public and private housing, whether by design or accident, has been a policy of governments for a number of years now. The idea is that it provides for a more cohesive society with greater opportunities for those who, due to the cost of housing, would be consigned to the outer suburbs.

If the property values are a useful guide then the outcome of this policy so far has to be good news for Melbourne. The diversity now inherent in these suburbs is a positive feature in its own right and its certainly not keeping the buyers away.