Melbourne’s population had boomed, and it had not only become one of the wealthiest cities in the world, but had also developed an international reputation as one of the greatest cities in the world.
Melbourne was in the midst of a land and property boom. Cable trams ferried crowds through the streets and the young and fashionable ‘did the Block’, promenading the footpaths and arcades of Collins Street. Telephone and electric light were novelties and Melbourne’s first skyscrapers appeared. Theatres and opera houses drew large audiences through the weekend evenings.
Melbourne showed itself off to the world by hosting major international exhibitions of industrial, scientific and artistic progress from all corners of the globe.
I’m talking about Melbourne in the 1880’s – it was dubbed ‘Marvelous Melbourne’ by British journalist George Augustus Sala when he visited in 1885. Here we are in 2018, and the tune hasn’t changed in 133 years.
Between then and now however, Melbourne witnessed some of the most severe economic collapses which are now simply buried in history books.
Bubbles, in any market, have a tendency to burst. Not long after, in fact within a decade, Melbourne’s Land Boom crashed in the early 1890’s – it caused a depression that rippled through all the Australian colonies.
Rather than building high-density apartment blocks like the European cities, Melbourne expanded wide and far. Real estate during the 1880’s was ‘The Land of Promise’, as proclaimed by this sales poster for Moreland Road, Brunswick (click for larger image):
Source: Moreland Road, The Land of Promise, West Brunswick, close to Essendon, 1888 (Dyer collection of auctioneers’ plans, Melbourne and suburbs State Library of Victoria)
Investors would buy up farms and subdivide them. They would then lure buyers with free railway passes out to the new estates, feed them and serve champagne before bidding got underway.
By 1889, the value of land in parts of Melbourne was as high as London. The Argus, a daily Melbourne newspaper wrote, ‘[The hunger] that has seized hold of so many people is the result not of an hallucination, but of an awakening to the value of land as a safe, a sound, and a profitable investment.’
In April of 1893 the Commercial Bank of Australia, who had lent substantial money to those involved in property speculation, closed it’s doors. The bubble had popped, and the boom was over. It’s estimated that Melbourne’s unemployment rate jumped to 20% during the 1890’s. Property prices dropped almost 40% (Melbourne) within years. This compares to a drop of 20% during the 1930’s depression.
Following the collapse of the 1890’s, it wasn’t until the boom of the 1950’s that would see prices return to levels reached during the 1890’s. It would take Melbourne 60 years to recover in price.
Here’s an aerial shot of a new housing estate in 1948, known at the time as ‘Heidelberg’.
Source: Charles Daniel Pratt 1892-1968 Photographer/State Library of Victoria/H91.160/376
Every bubble is different. Their formation varies from duration, magnitude, and cause. It was higher interest rates that would eventually pop the bubble of the 1890’s, and the banks’ failure to take security for loans written during this frenzy would lead to the collapse of a number of them. With bank lending having soared since 2012, prices having doubled during this time, and interest rates at an all time low, could we be facing another crisis like the one that has been buried in history books for decades? Of course not, it’s different this time. Right?