The Stats Guy: The rise and fall – and rise – of Australia’s middle class
It wasn’t long ago that most Australians thought of themselves as “middle class” – and believed the next generation would do even better. But things have changed, writes Simon Kuestenmacher.
Australia’s middle class wasn’t a happy accident – it was deliberately built.
In the decades after World War II, government policy created opportunities for people to join the middle class at scale.
Soldiers returned to cheap loans for housing. Universities and TAFEs flourished. Full employment was a national goal. Wages rose in lockstep with productivity, and more Australians became homeowners.
By the 1980s, most Australians thought of themselves as “middle class”. They owned a modest home with a Hills Hoist, enjoyed an annual caravan park holiday, sent their kids to decent public schools and believed the next generation would do even better.
Then things changed.
The fall: high costs, flat wages, fragile work
In the past four decades, the foundations cracked.
Wages flatlined while housing costs exploded. Secure, full-time jobs gave way to casual, part-time and gig work. Education and childcare became more expensive. Our tax system began reinforcing inequality by taxing income much heavier than wealth or consumption.
Housing is the biggest culprit. Since 2000, median house prices in our major cities have more than tripled, far outpacing income growth.
Even university-educated, well-paid young Australians are locked out of home ownership unless they have wealthy parents or a large inheritance.
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According to the Organisation for Economic Co-operation and Development, only 58 per cent of Australians are now in the “middle-income” group. That’s below the OECD average and well down from previous decades.
The Melbourne Institute’s HILDA survey finds rising numbers of people identifying as financially insecure, especially renters and young families.
If we do nothing, the middle class will shrink further, wealth will concentrate among older homeowners and inheritance will become the main path to prosperity.
The future: A fork in the road
Three big forces will shape what happens next.
First, a massive intergenerational wealth transfer is under way. Baby boomers will pass on about $3.5 trillion in assets (mostly in the form of housing) over the next two decades.
Without intervention, this will entrench privilege for the children of property-rich parents while others fall behind.
Second, migration and population growth will continue to put pressure on housing and infrastructure. Without a significant lift in supply and reform of land-use rules, prices will remain elevated, further squeezing the middle.
I’ve argued in a column last year that housing in Australia is deliberately kept expensive by both major parties and that even lower migration levels wouldn’t make housing affordable.
Third, the politics of homeownership will become more volatile. As fewer young people own homes and as those who do are burdened with huge mortgages, the old political consensus around ever-rising property values will start to fray.
This will come at a dear cost to the two major parties, which continue to lose votes to third parties. At the last election, one-third of votes went to third parties (up from about 2 per cent at the 1987 election).
At the moment, compulsory and preferential voting keeps the two major parties in power. In about six elections (18 years), it is plausible that the power base of LibLab (the combined major parties) has eroded enough to see a third party (likely not in existence yet) will take control. This new party might well be interested in lower house prices.
There are, of course, other factors too. We’ve spent decades shifting away from a protected industrial base toward a debt-fuelled, asset-price economy.
Credit booms have inflated housing rather than productive investment. Meanwhile, our energy policy has been uncertain, making it harder to drive the kind of manufacturing, tech innovation, and productivity growth that underpin middle-class incomes.
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The way back: Rebuilding from the middle
If we want a strong middle class again, we must reduce the biggest household costs (starting with housing) and invest in the industries, infrastructure and skills that keep wages strong.
- Housing supply: Allow far more medium-density housing near jobs, schools, and transport. Open more greenfield land. Build entirely new cities connected by high-speed rail. Middle-class benefit: Expanding supply in the right locations brings homeownership back within reach, reduces commuting costs, and keeps urban living affordable.
- Public and affordable housing: Lift public housing to at least 10 per cent of the national stock (currently under 4 per cent). Public housing must be seen as a core piece of national infrastructure, like roads or hospitals. Middle-class benefit: Ensures essential workers and low-income families can live in stable, affordable homes, preventing downward mobility and keeping communities diverse.
- Innovation in housing delivery: Incentivise and use prefabrication, robots, 3D printing, and new materials to cut costs without cutting quality while speeding up production of housing. Middle-class benefit: Lowers construction costs and accelerates supply, making quality housing more attainable without sacrificing standards.
- Energy and industry policy: Make abundant, reliable, low-cost energy a national priority. This is the foundation for a growing manufacturing base and further expansion of the tech sectors. Any desire to diversify our economy through value adding to our most important exports sectors (mining and agriculture) will come to nothing if energy remains expensive. Middle-class benefit: Cheaper, reliable energy lowers household bills, boosts industry competitiveness, and supports well-paid, secure jobs.
- Regional growth: Actively encourage growth in regional cities. These will largely be smaller places along the eastern seaboard as well as the bigger satellite cities orbiting our capital cities. We must see our smaller cities grow at faster rates than our bigger cities. Middle-class benefit: Creates affordable housing and job opportunities outside capital cities, easing cost pressures and improving quality of life.
- Tax reform: Phase out negative gearing and capital gains tax discounts. Replace stamp duty with a progressive land tax. Consider an inheritance tax threshold. Maybe, allowing tax-free bequests up to the median house price, but taxing larger windfalls like income. We might also explore lifting the income tax-free threshold to match the cost of living, with governments then incentivised to lower that cost through policy. Middle-class benefit: Shifts the tax burden away from work and toward wealth, making it easier for ordinary households to be financially secure.
A word to homeowners: Yes, you
These ideas might sound radical to some, but they are common in other places. Such reforms certainly require political courage.
Before political reform has a chance, we must have a difficult conversation with the majority of Australians who already own a home. If you’re a homeowner, this part is for you.
You’ve benefited from decades of rising property values. You worked hard, made sacrifices and bought in at the right time. That’s worth respecting.
But today those rising values are hurting our children, our essential workers and the cohesion of our society. If your property doubles in value every decade, someone else’s ability to own or rent is diminished. That’s neither sustainable nor fair.
You may not love the idea of lower house prices. But ask yourself: Do you want to live in a country where your grandkids can’t afford a home? Where nurses, teachers, and tradies commute two hours each way because they can’t afford to live near work? Where prosperity is determined by inheritance rather than effort? Where the “middle class” has been eroded and society is split into winners and losers?
We need to treat affordable housing the way we treat universal healthcare or public education: as a national asset. Not a speculative play, but a building block of a fair society.
Lower house prices (or at the very least price growth below the rate of wage growth) are not a loss. They are an investment in a better future. They are the price we must pay to rebuild the Australian “middle class”.
Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His podcast, Demographics Decoded, explores the world through the demographic lens. Follow Simon on Twitter (X), Facebook, or LinkedIn.
