Australians have always had a taste for the finer things in life, but in 2025, the appetite for luxury is reaching new heights. From designer handbags to high-end vehicles, a unique economic phenomenon known as the ‘Veblen good’ is driving up demand—and prices. But what exactly are Veblen goods, and why are they shaping the way we spend?
What Are Veblen Goods? The Psychology of Prestige Pricing
Named after American economist Thorstein Veblen, Veblen goods are products that defy the basic laws of supply and demand. Rather than decreasing in desirability as prices climb, these goods become more sought after precisely because they’re expensive. The higher the price tag, the greater the status signal—and the stronger the desire to own them.
- Examples: Luxury cars (think Mercedes-Benz G-Class), designer watches (Rolex, Patek Philippe), exclusive fashion (Hermès Birkin bags), and even certain rare whiskies or limited-edition sneakers.
- Key feature: Their value is tied as much to their price and exclusivity as their intrinsic qualities.
In Australia, this phenomenon is especially visible in 2025, as luxury imports and exclusive local brands surge in popularity, despite inflationary pressures and cost-of-living concerns.
2025 Trends: Why Veblen Goods Are Booming in Australia
Several factors are converging to supercharge demand for Veblen goods across Australia this year:
- Wealth Concentration: ABS data in early 2025 shows a growing divide in household wealth, with top earners increasing their disposable income despite broader economic headwinds.
- Luxury Import Tariffs: The federal government’s 2025 review of luxury car tax (LCT) thresholds has pushed prices of imported prestige vehicles even higher, yet sales volumes have remained robust—signaling strong Veblen effects.
- Travel and Social Media: As international travel and influencer culture rebound post-pandemic, demand for luxury experiences and goods is amplified by global exposure and social comparison.
- Limited Editions: Major brands are leaning into scarcity by releasing limited runs and Australia-exclusive collaborations, knowing that rarity fuels the Veblen premium.
For example, the 2025 Australian release of the Hermès Kelly bag with a unique eucalyptus green finish sold out in hours, despite a price north of $35,000—a textbook case of Veblen demand in action.
Policy Updates and Economic Implications
The 2025 policy landscape is also shaping the market for Veblen goods:
- Luxury Car Tax (LCT) Changes: The government’s incremental LCT threshold hike (now $76,950 for fuel-efficient vehicles) has had little dampening effect on luxury car demand. Industry insiders report waiting lists for top-tier models remain months long.
- Import Duties: While discussions continue on lowering tariffs for certain luxury fashion imports, the current settings mean luxury goods remain costly—and therefore, more coveted among Australia’s elite.
- Wealth Reporting: Updated ASIC reporting requirements for luxury asset purchases in 2025 aim to increase transparency, but may also add to the aura of exclusivity for buyers able to clear new regulatory hurdles.
Economists warn that Veblen spending can distort broader consumption patterns. As more wealth is channelled into status-driven purchases, less may be available for productive investment or everyday consumption. Yet for retailers and brands, the Veblen effect is a powerful profit engine—one that’s only accelerating in 2025.
What It Means for Australian Consumers
For everyday Australians, the Veblen goods boom is a double-edged sword. On one hand, it’s driving innovation and exclusivity in the market; on the other, it’s widening the gap between aspirational consumers and those for whom luxury remains out of reach.
Key takeaways for 2025:
- Expect ongoing price hikes for imported and limited-edition luxury goods.
- Watch for new, Australia-only releases as brands court local Veblen demand.
- Consider the psychological drivers behind luxury purchases—are you buying for quality, or the status it confers?
Whether you’re a buyer, a brand, or simply a curious observer, the Veblen good phenomenon will remain a fascinating—and influential—force in the Australian economy this year.
