As Melbournians, we’re all familiar with the cost of living. Young people are struggling to afford household items, let alone households in which to raise children. What are the institutional causes of the cost of living crisis? 

Rising prices wouldn’t be such an issue if wages were rising with them, but according to the Australian Bureau of Statistics, “real wages” (wage increases offset by price hikes) are actually declining. Over the year to December, wages grew by 3.4 per cent, but in that time prices also rose 3.8 per cent—bringing the purchasing power of the Australian public slightly down, not up. 

But even these statistics don’t tell the full story. While the economy as a whole is stagnating, wealth is migrating up the financial spectrum, further disadvantaging the average Australian buyer. KPMG, one of the “big four” global accounting firms, calculated that the median net worth of an Australian household slightly decreased between the 2019-2020 financial year and that of 2024-2025. 

Meanwhile, the average household net worth rose by about $300k, or 24 per cent. This indicates that, accounting for inflation, a similar pool of money in the Australian economy is being distributed away from the bottom majority of households and to a wealthy minority. In other words, financial mobility is decreasing as the middle class shrinks and wealth is polarised. 

This is a relatively recent trend—KPMG notes that wealth growth was “relatively even across all households” between the financial years of 2014-2015 and 2019-2020, regardless of income.

KPMG’s Chief Urban Economist, Terry Rawnsley, places the blame on surging property asset values during the pandemic, saying: “Households that already had property or were able to get on the ladder during that time are now reaping the rewards and seeing their wealth grow much faster than those that missed out.” 

Another report by the Carmichael Centre, a research initiative founded by the Australia Institute, suggests that a loss of bargaining power for workers in the last 20 years has contributed greatly to the cost of living crisis by preventing wages from rising with inflation. 

Shaped by unbalanced government policy pertaining to industrial relations between 2014 and 2022, the economy that young people are entering today has changed drastically since their parents’ day. 

Australia has a very low rate of unemployment, sitting at 4.4 per cent as of May 2026. Theoretically, in normal economic circumstances, this should mean that employers would be in fierce competition for labour, thus offering higher salaries to attract workers. 

So why, then, have real wages stagnated and even fallen in recent years?

David Peetz, who headed this report, notes that government policy has tended to misunderstand industrial relations as objectively determined by economic conditions, when in fact, “employers have discretion in setting wage offers, and employees can influence accepted wage rates through collective bargaining or political influence.” 

The government has relied on misguided wage growth projections to direct public policy, focusing on minimising inflation and, in turn, trusting the market to direct the spoils of increased productivity to workers. 

But wage rises never really came, because workers needed power to capitalise on their advantageous bargaining position, even in a tight market, either through unions or policy events —such as strengthening minimum wage and labour laws. 

This could also help explain the “gigification” of the economy, meaning that entry level white collar work, the kind available to recent university graduates, is largely shifting from a model of nine-to-five employment to unstable and insecure on-demand or freelance equivalents. 

If young Australians hold less power in deciding how their office operates, they are more likely to face uncomfortable working arrangements. 

Recent reforms enacted from 2022 to 2024 were found to have taken an encouraging turn for wage growth. Peetz found that 22 labour-related policy events in this period increased worker power and only one reduced it. Subsequently, wage growth accelerated and peaked at 4.8 per cent by the end of 2024, without an adverse effect on inflation. 

These changes meaningfully address cost of living concerns, but also prove that policy is fickle—and do not turn back the clock on the wage stagnation of the previous two decades. 

One thing is for sure—students and young people are struggling the most. 

Without inheriting or being gifted a home, young adults are finding it more difficult to break into the property market than ever. As many are forced to pay surging rents rather than make the impossible leap into home ownership, more established home owners benefit as their assets appreciate with the housing market. 

At the same time, misguided industrial policy has failed to allow for workers to capitalise on increased productivity, and young Australians face unstable employment and wages which have fallen out of line with inflation. Meanwhile, employers reap the rewards of increased productivity. 

Policy has taken steps to address the issue—but as the Carmichael Centre’s report clarifies, for this trajectory to continue, political pressure must be continuously applied to relevant parties. Change does not happen on its own.