"Common sense also dictates it - relatively few people want to be a long way from their families, their jobs, etc"

Common sense dictates nothing of the sort. How many people work
in city central? Bankers, insurers, a few others. You have to see
suburbia as whole villages of people. Schools, stores, businesses,
doctors, etc, etc, all within that suburban village. Most day to
day things are right there next to you, if you look around. Clearly
it makes sense to have a house not far from where you work, but there
are more jobs in suburbia then in any city. Look at the tree change
sea change movement. Oldies moving out of cities everywhere!

I paid 18% interest on my first house, and yup I felt poor, but so
did nearly all my mates. Thats ok, we had dreams and we have lived them.
But many now want life on a plate, instantly.

Your example of one house in Melbourne, tells me about one house,
not the market. What was the average house price in Melbourne in
2000 and what is it now?

Yabby, have you actually spent any time in modern outer suburbia of Melbourne and Sydney? It is literally nothing but houses, houses and houses. There are no shops, no industry, no offices etc. etc. They are anything but self-contained "villages" or communities. I've worked in "suburban" jobs nearly all my professional life (and one that was in an old outer industrial zone), and none of them would be fun to get to if I lived in the new satellite suburbs that are realistically many younger families are forced to locate to give property prices (I tested some the routes when we were seriously considering it at one point). And jobs are just one consideration - there's also family (all of whom live within 10km of the city), and the myriad entertainment/cultural/retail options that are unavailable in the new outer suburbs.

The rise in our house price is not atypical of the area, or of any suburbs a similar distance from the city. Closer suburbs have seen far more dramatic rises (a small 3-br terrace house in a suburb ~7km from the city my dad bought for around $300K ~10 years ago was recently valued at 1.2 million: that's a 4 fourfold increase in 10 years).

Your point about 18% interest rates reflects what I've heard many times before: despite such rates, houses were infinitely more affordable 20 years ago. Plus you had the advantage that once rates came down, mortgage payments were even more manageable.
FWIW, I have no complaints about our own situation, but I recognise just how lucky we are, and know full well that most in my age group (and certainly those coming along 4 or 5 years later) have been basically locked out of any realistic option to own their own home for quite some time.

Wiz, nope, I base my knowledge on the city of Perth, which is a good mix of
retail, industrial and suburban in most areas. If that is not the case in Sydney and
Melbourne, no doubt its those Govt planners who got it wrong, yet once again :)

There are always two sides to these debates. Melbourne is growing at 4% population
a year, which is a change from when they were all heading for the Sunshine Coast.

Any major city that grows, there will be high income individuals who prefer living
close to the centre. Go to London to see the price of real estate there, for instance.

Supply and demand come in to it. A larger population of wealthy individuals and
properties in some locations will increase., like inner city areas.

There are of course many winners. Plenty of working class people bought their
houses years ago, for a fraction of their price today. Your dad would be smiling,
he can retire in comfort, without requiring a Govt pension. There are plenty like
him, good on them. I am always happy to see the battler get a break in life.

Houses were certainly not more affordable when interest rates were 18%. Today
most women work and with two salaries, one saved, its not that hard to raise
enough money, to put down a healthy deposit on a house. I was still stuck with
the old female mentality, that once married, women would stay home and drink
cups of tea with their friends. That made buying a home as well as financing
a business, virtually impossible. We certainly had it a lot tougher then today’s
youth, who seem to want the world on a plate, right now.

Interestingly, whilst you aspire to live closer to the city, take a look at every
second retired politician, CEO or movie star. They head for the country,
to escape the rat race. There are values far beyond city life, but it takes
wisdom and time to understand them.

I fully agree that much of modern suburbia is a classic example of failed government planning. Indeed, I'm not sure much planning went to its development at all.

FWIW my Dad was hardly ever a "battler" (except for perhaps his childhood) - and the suburb his house was in was hardly working class either.

Again, population growth is no doubt an underlying factor that supports the speculators' market, as it guarantees the long term growth in house prices. But a chart comparing population growth to property price inflation would, I'm sure, make it quite clear that the recent blow out in prices is an anomaly.

Your circumstances may have been different, but 20 years ago, in Melbourne, on a single good income, even with 18% interest rates it was quite possible to afford a 4-br house in a good suburb <10km from the city. Today, at 7%, with TWO good incomes that is not possible - those houses are now as much as 10 times the price they were back then.

Is it reasonable to suppose that because women are now more "prepared" to work and two incomes can be counted on, that affordability is less of a problem?
Both parents working full-time is a massive strain on a family, and it's often a decision made out of financial necessity.

Your last point is irrelevant. The affordability problem is primarily one for young families wanting to get into the housing market. There are lots of valid reasons why they wish to live within a reasonable distances of major cities, outlined previously. And suggesting that it takes "wisdom" to understand the need to escape the rat race is sheer arrogance: many young couples *like* the rat race, and it's certainly the most realistic way to realise the "dreams" you mentioned earlier.

Having said that, I think a good case could be made that an effort to attract people (especially new immigrants) into regional towns would significantly ease the housing affordability issue. The state government in Victoria have been attempting that to some degree, but it is a very difficult sell.

Nic, I just think its simplistic to blame it all on “speculators”. There are many
small reasons which make one large reason. For one, we’ve had 15 years of
good times and many young ones still believe things can only go up. The
Economist has said for ages, that houses are overpriced in Australia, based
on the fundamentals.

I certainly would not buy a house at present prices, but people learn the hard
way. An American friend of mine was convinced that house prices could only
go up, today she is wearing lots of egg on her face. :) Something similar
could well happen here, its an uncertain world that we live in.

http://www.economist.com/daily/news/displaystory.cfm?story_id=10231806

To think that all this is not going to affect us, might well be kidding ones self.

Two incomes once again changes the laws of supply and demand. People place
high value on their houses, any profits are tax free too, so they invest. They will
mortgage their lives away to achieve their dreams, even if it takes two incomes.
If your family is on one income, you are competing with families on two incomes,
you stand far less of a chance in the market.

My last point might well have been irrelevant, it was simply a philophical
observation that I learnt at a young age, whilst living as a teenager in Paris.

They were all there for the glitz and the glamour, the culture and the action.
But deep down they nearly all realised how superficial, shallow and pretentious that
city life was, most had dreams of one day getting the hell out of the place.
That made me think fairly deeply as to what life is all about. Each to his own

I agree it would be very wrong to blame it *all* on speculators - clearly if young families unanimously decided to stop wanting to own their own homes, the market would look very different.
But if you are agreeing that houses are overpriced, then you are essentially agreeing that we are witnessing a speculative bubble. What other explanation is there? And yes, it will deflate eventually. I highly doubt it will deflate as rapidly and dramatically as it has in the U.S. - but the real estate bubble there was launched out of a recession, with interest rates cut to 1%, where predatory lending practices took grip in a way that fortunately we've mostly avoided here. My hope is that it will be a gradual decline as baby boomers start to retire and downsize - and of course that our own house doesn't end up being worth less than what we paid for it.

FWIW, we were managing our mortgage fine on just one income. However it didn't leave much opportunity for saving. My wife was actually perfectly happy to do part time work for modest pay, but couldn't find anything, hence is now being paid reasonably well in a full-time job, while we juggle child-care between ourselves, family and friends.

I don't think you can at all reasonably compare teenagers living in Paris with young families wanting to live close to their parents, jobs, and the other advantages that established suburbia gives. The new fringe subdivisions where many of them are often forced to move to out of financial necessity are largely soulless places that are hardly conducive to any deeper, more meaningful sort of existence. Having said that, our own suburb I find depressing at times partly because of the lack of younger families - the area was obviously developed 30 years ago as place for young families to raise kids, but the innumerable playgrounds around are mostly empty now, and I've yet once to see a family on our street with any kids of a similar age to our own.