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How retirees are changing Melbourne's economic power balance

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The distribution of economic power in our biggest cities is shifting as the baby boomer generation moves into retirement.

Regions of Melbourne and Sydney which have traditionally enjoyed the highest incomes are surrendering that position as their communities get older.

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In Melbourne, the leafy inner-east area long enjoyed the city's top median household income. But during the past five years that changed. The 2016 census, released last month, showed the median income in the inner east statistical district, which takes in Kew, Hawthorn and Camberwell, had been surpassed by Melbourne's bayside inner south. Households in the inner south statistical area, which includes Brighton and Hampton, had a median annual household income of $92,924 – about $1800 more than the inner east.

There's a similar trend at work in Sydney. The affluent north shore region, which takes in a swag of exclusive Sydney suburbs including Mosman, Castlecrag and Turramurra, had the weakest income growth of any part of the city between the 2011 census and 2016 census. A decade ago the median household income in the north shore statistical district – called "North Sydney and Hornsby" by the Bureau of Statistics – was 51 per cent higher than the city-wide median. By 2016 that premium had been slashed to 33 per cent.

While the north shore maintained its place at the top of the city's regional income league ladder in 2016, it probably won't be there for much longer.

On current trends, Sydney's eastern suburbs region, now placed fourth, will be the city's highest regional income area by the next census, due in 2021.

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The ageing of the population, especially the gradual departure of the Baby Boomers from the workforce, has underpinned these shifting income patterns.

The Boomers – born between 1946 and 1961 – began to move into retirement during the past decade. The post-retirement behaviour of that large demographic cohort will have major economic consequences.

In the past a significant share of retirees headed for coastal retreats but now many are choosing to "occupying the crease" in desirable city neighbourhoods. And of course, people are living longer than ever.

Income growth trends. 

Terry Rawnsley, a regional economics expert with SGS Economics and Planning, says the inner east of Melbourne and the north shore of Sydney are suffering from "a lack of renewal of high income earners" as older residents stay put.

Because retirees tend to have lower incomes than younger age cohorts, the income advantages long enjoyed in those established wealth havens are dissipating.

As a result, economic power is "starting to be pulled away from those blue ribbon suburbs" in the inner east, says Rawnsley.

It's no surprise retirees are choosing to remain in amenable, well-located suburbs near lively cultural centres and world-class healthcare.

But that trend will help drive complex economic changes at the local level.

As suburbs get older their expenditure patterns will change and that will alter what local services are available along with the character of shopping centres and high streets.

As people live longer in neighbourhoods close to central business districts (and other job hubs) there will be less opportunity for younger workers to locate there.

More young workers locked into long commutes will put further stress on urban transport networks and increase political pressure for high-density housing developments in well-located suburbs.

The city regions that are renewed by young high-income earners are likely to attract economic activity and jobs, possibly at the expense of areas where household incomes are in relative decline.

Matt Wade is a Fairfax Media columnist.