Building societies were first established in provincial England towards the end of the 18th century as a way of encouraging thrift and home-ownership among working men. By pledging themselves to regular contributions, the members of the society accumulated the funds for borrowers to embark on the purchase of their own modest dwellings. Sometimes members took turns to take a loan, casting lots for the privilege, until all the members had taken and repaid their loan when the society was 'terminated', usually after five to seven years. Since freeholders also qualified for the vote, building societies were regarded as a force for political emancipation. In the colonies they also became an ideal vehicle for land speculation.
Building societies had already appeared in Melbourne before the gold rush. 'When we look upon the free and open field that now lies before these societies in this colony, compared with those of our fatherland, we may reasonably expect results of tenfold advantage', an official of one pioneer society predicted in 1850. The granting of manhood suffrage in 1856 severed the link between freehold and the vote, but liberal reformers continued to promote building societies as a bulwark against 'Levellers, Socialists and Red Republicans'. The land-hunger that propelled the Free Selection movement also inspired Melbourne's self-improving shopkeepers and artisans to acquire suburban homes of their own. The leaders of the movement, like the former Chartist J.B. Crews, were often advanced democrats with a strong following among the suburban working class. By the 1870s building society membership was more than twice as high per capita as in England.
Until the 1880s land boom most societies remained relatively small (300-400 members) and localised. More than half of the 62 societies registered in 1878 bore the names of the district where they began operations. In 1865 Scottish-born temperance advocate James Munro founded the Victorian Permanent Property Investment Building Society, one of the first societies to depart from the terminating model. By taking deposits from non-borrowers, and advancing funds to property speculators as well as home-buyers, the permanent societies multiplied the pool of funds available for residential investment. By the 1870s most societies had swung over to the permanent model. Soon the boldest were taking deposits from British investors as well as locals. By the mid-1880s the deposits of the building societies rivalled those of the savings banks, and by the end of the decade their advances were financing an increasing share of residential investment.
Regarded as pillars of morality and friends of the working man, the leaders of the movement were able to scale the heights of business and politics. James Mirams, deacon of the Collingwood Congregational church and a prominent Rechabite, founded the Premier Building Society and became local member for Collingwood in 1876. By the late 1880s he stood at the apex of a shaky pyramid of enterprises including land banks, tramway companies and temperance hotels, and had moved to a grand town house in East Melbourne.
'It is difficult to over-estimate the social value of the work that has been done by building societies', Richard Twopeny observed in 1883. 'In the suburbs of the large towns you see whole townships built entirely by these societies.' The verdict of historians has been more cautious. While they clearly augmented the sources of funds for working-class home-buyers, an increasing share of their funds was flowing into the hands of middle-class land speculators. Some managers had succumbed to the trap of borrowing short-term deposits from British investors and advancing them on long terms and inadequate security. The collapse of Mirams' Premier Building Society in March 1890 was the first tremor of a financial earthquake that eventually engulfed the entire industry. By December 1891 many other societies had suspended business. As property values tumbled, houses were often worth less than the sum still owed to the societies. Many borrowers simply stopped their repayments and walked out. The societies suddenly became the unwilling owners of thousands of unsaleable suburban properties.
The 1890s bank and financial crash delivered an all but fatal blow to the Melbourne building society movement. In the early 20th century they remained a modest subsidiary source of funds for working-class home-owners. In the 1950s they supplied about 20% of the funds for new homes, a proportion that increased further in the 1960s and 1970s. Tighter government regulation ensured that most societies did not again succumb to the speculative excesses of the land-boom era, but the public recriminations following the crash of the Geelong-based Pyramid Building Society in 1992 were an uncanny reminder of the events of almost precisely a century before.