Spatial inequality of income and employment is increasing in Australian cities. This paper explores the factors underlying increasing neighbourhood inequality with a particular focus on employment inequality. Particular attention is paid to the role of public housing: the increased targeting of public housing is identified as a partial explanation of the observed changes. A conventional Blinder decomposition is used to identify the role of observable characteristics of the population, such as education, demographics, ethnicity and industry structure, and returns to those characteristics. The changes in observable personal characteristics indicate that there has been a significant amount of sorting by these characteristics since 1976. For example, Australian cities have become more socially stratified since that time with well educated people increasingly living together. However, it is important to note that the differences between low-status and other areas cannot be explained solely by changes in personal characteristics of the local residents. In summary, geography apparently matters!