Introduction

Navigating the Australian property market in mid-2025 can feel overwhelming. Investors are bombarded with advice, hot-spotting tips, and so-called 'expert' insights. One of the most persistent and seemingly logical theories is to 'follow the money'—the idea that suburbs with high wage growth will inevitably experience high capital growth. It makes intuitive sense: higher incomes mean more borrowing capacity and greater demand for housing, pushing prices up. But in the world of property investment, intuitive theories can be dangerously misleading if not rigorously tested. This article dismantles the wage growth myth using real data, revealing why this single metric is an unreliable predictor of success and guiding you towards a more sophisticated, data-driven approach to property selection.

The 'Follow the Money' Theory: Does It Hold Water?

A common narrative pushed by property commentators is that the most crucial piece of data for the next decade is wage growth. The argument is simple: in locations where incomes are rising faster than the state average, property prices are bound to follow suit. This advice often comes packaged in glossy newsletters with compelling charts, urging investors to target these high-income-growth areas to secure future wealth.

To test this, we'll examine a real-world case study that was presented to investors as a clear example of this theory in action. The analysis focused on two distinct postcodes in Melbourne, Victoria, using census data on weekly family income sourced from the Australian Bureau of Statistics (ABS).

The Case Study: A Tale of Two Melbourne Postcodes

The original analysis presented two contrasting scenarios:

1. The 'Area to Avoid' (Postcode 3337): This area, encompassing suburbs like Melton, started in 1991 with a higher weekly family income than the Victorian state average. However, by 2021, its income growth had fallen behind, and the state average was now higher. According to the theory, this slowing wage growth should signal poor capital growth prospects. 2. The 'Ideal Area' (Postcode 3011): This postcode, including gentrifying suburbs like Seddon and Footscray near the CBD, started with a lower income than the state average in 1991. By 2021, it had surged ahead, with its average weekly family income now significantly out-pacing the Victorian average. This was presented as the perfect example of where an investor should buy—an area with accelerating wage growth.

On the surface, the logic is seductive. But a deeper look at the data reveals a completely different story.

A Deeper Dive into the Data

Looking at raw income levels on a chart can be deceptive. It’s difficult to accurately gauge the rate of change over time. A more effective method is to analyze the percentage growth in income for each five-year census period. When we re-chart the data this way, the trends become much clearer and allow for a more precise comparison between the two postcodes and the state average.

This revised analysis shows that the 'ideal' postcode, 3011 (Footscray/Seddon), consistently demonstrated superior wage growth compared to the state average for nearly three decades. The periods between 2006-2011 and 2011-2016 were particularly strong, with wage growth more than double the state average. According to the 'follow the money' theory, buying in Postcode 3011 in 2011 or 2016 should have been a guaranteed path to outperformance.

Meanwhile, Postcode 3337 (Melton) never once had a five-year period where its wage growth exceeded the Victorian average. It consistently lagged behind, making it the clear area to avoid based on this single metric.

Uncovering the Surprising Reality: Capital Growth Performance

Now for the crucial test: did the capital growth outcomes match the wage growth theory? The data shows a shocking reversal of expectations.

We analyzed the capital growth from the key decision points (2011 and 2016) to the present day in early 2025. The results are undeniable:

• An investor who bought in the 'ideal' high-wage-growth Postcode 3011 in 2011 or 2016 drastically underperformed not only the state average but also the supposedly 'inferior' low-wage-growth area.

• From 2016 to 2025, the 'area to avoid', Postcode 3337, had more than double the capital growth of Postcode 3011. It also comfortably beat the Victorian state average.

The very indicator that was promoted as the key to success led to the worst possible outcome in the two most obvious instances. The theory didn't just fail; it was spectacularly wrong.

Why Simplistic Metrics Fail: The Bigger Picture

This case study is a powerful lesson in the danger of relying on simplistic, single-metric analysis. Property markets are complex ecosystems driven by dozens of interconnected factors. Here’s why the wage growth theory falls short:

• Correlation is not Causation: While high incomes are present in expensive areas, it doesn't mean that growth in income is the primary driver of price growth. Other factors, like supply constraints, infrastructure development, or shifts in lifestyle preferences, can be far more influential.

• Demographic Shifts: A rise in average income might not be from existing residents getting pay rises. It could be due to gentrification, where wealthier individuals move in, displacing lower-income residents. This is a change in demographics, not necessarily a universal increase in local purchasing power.

• Ignoring Affordability: The high-wage-growth area of Seddon/Footscray had already experienced significant price growth by 2011. This created an affordability ceiling, limiting the pool of potential buyers and capping further growth. Conversely, the affordability of the Melton area opened it up to a much larger segment of the market, driving demand and price growth.

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Conclusion

The myth that high wage growth directly causes high capital growth is a piece of marketing, not a sound investment strategy. As our case study demonstrates, following this advice blindly could lead you to significantly underperforming assets. The key takeaway for every investor is to cultivate a healthy skepticism and demand deeper analysis. Don't be swayed by a single, compelling chart in a newsletter. Instead, focus on the fundamentals of supply and demand, assess multiple data points, and leverage technology that can see the whole picture, not just a single, misleading snapshot.

Your investment journey is too important to be guided by flawed theories. It's time to move from hype to data-driven confidence. Explore HouseSeeker's powerful [real estate analytics](https://houseseeker.com.au/features/real-estate-analytics) to uncover the real drivers of property growth and build a strategy based on evidence, not opinion.

Frequently Asked Questions

Is wage growth completely irrelevant for property investors?

No, it's not irrelevant, but it's a small piece of a very large puzzle. High or rising incomes can be a positive sign of a suburb's economic health and can contribute to its long-term appeal. However, it should never be used as the sole or primary indicator for making an investment decision. Its predictive power for capital growth is weak when isolated from other critical factors like housing supply, affordability, and local infrastructure.

What data points are more reliable than wage growth?

A robust analysis should include a balanced scorecard of indicators. More reliable metrics for forecasting capital growth include:

• Inventory Levels & Days on Market: Low stock levels and properties selling quickly indicate strong demand exceeding supply.

• Vacancy Rates: Consistently low rental vacancy rates signal a tight rental market and strong tenant demand, which often precedes price growth.

• Population Growth: Data from the ABS showing sustained population growth is a fundamental driver of housing demand.

• Infrastructure Pipeline: Significant investment in new public transport, schools, hospitals, and amenities can transform a suburb's appeal and value.

• Affordability: Analyzing a suburb's price point relative to the wider city median can reveal areas with more room for growth.

How can I avoid being misled by property 'experts'?

Always be critical of the source. Question the methodology behind any claim and look for comprehensive evidence that tests the theory, rather than just cherry-picked examples that support it. Be wary of anyone promoting a single 'secret' or 'magic bullet' indicator. The best decisions are made by leveraging platforms that provide transparent, multi-faceted [real estate analytics](https://houseseeker.com.au/features/real-estate-analytics), allowing you to verify claims and build your own understanding of the market.