Household wealth is soaring, but who’s benefiting?

 In Home News Section, Uncategorized

Did you hear that household wealth has hit another record high?

Australia’s households just keep getting wealthier, apparently.

In December, wealth per person hit a new record, and in the March quarter it hit another record of $492,055 — up $19,494 in three months.

Does that feel reasonable to you?

I’ll show you where that “wealth” is accumulating.

Do you own any assets?

Late last year, the Australian Council of Social Service (ACOSS) published a report showing the main components of wealth in Australia.

Using the latest available data from the Bureau of Statistics (for 2017-18), it showed the average wealth per household in Australia in 2018 was made up of:

  • Main home (39 per cent)
  • Superannuation (20 per cent)
  • Shares and other financial assets (19 per cent)
  • Investments in other real estate (12 per cent)
  • Other non-financial assets (10 per cent)

Remember “wealth” and “income” are different things.

As we discussed a few months ago, “wealth” refers to the economic resources held by members of a household after all of their debts are theoretically paid off.

It’s held in those assets listed above: residential and investment properties, superannuation accounts, shares, personal savings, and non-financial assets like cars, furniture and artwork.

Your wealth increases if those things increase in value.

It can increase when the estimated sale price of your home goes up, relative to the size of the principal outstanding on your mortgage.

It can increase when your super grows, or when your savings grow.

That’s very different from “income.”

“Income” refers to current payments received by a household that are used to support current consumption.

The most common sources of income are wages, salaries, and government pensions and allowances.

So, when we talk about household wealth increasing, we’re talking about the value of assets going up.

So what’s happening now?

The value of assets is skyrocketing at the moment, but incomes are hardly growing.

So if you’re lucky enough to own any assets (like a residential property, or superannuation savings), your wealth is likely increasing.

But if you don’t own any assets, you’re missing out.

As you can see from the graph below, surging property prices have been responsible for the bulk of the sharp increase in household wealth in the last year.

After losing $23.9 billion in the June quarter last year, the value of land and dwellings has been increasing ruthlessly.

In the September quarter it jumped by $230 billion, then by $343.2 billion in the December quarter, and then by $434.6 billion in the March quarter.

Record low interest rates and government support for the housing sector have been fuelling the price rises, as have improving labour markets, and pent-up demand.

Superannuation has been the next biggest contributor to rising wealth.

The value of super reserves has increased by hundreds of billions of dollars since the COVID lockdowns last year, as share markets recover.

But what if you extinguished all of your super savings after taking advantage of the federal government’s early access to super scheme last year?

The McKell Institute, a progressive thinktank, released a paper last month showing how that may have hurt your wealth accumulation.

Unfortunately, the early access to super scheme began when the share market was near the bottom of its cycle, so if you withdrew your savings then you would have missed the subsequent recovery on share markets.

Australians withdrew $36.4 billion under the scheme.

According to the McKell Institute, if that money wasn’t withdrawn from Australia’s super accounts, it would have grown to $41.1 billion by April, representing $4.7 billion in foregone retirement savings.

Who wants to be a millionaire?

When ACOSS released its wealth report last year, it said the 2018 data would provide a baseline against which to assess the impact that COVID-era policies could have on wealth inequality in Australia.

And we got a hint of that last week, when Credit Suisse released its annual Global Wealth Report 2021.

Its report tracked global changes in wealth in 2020.

Interestingly, it showed Australia is topping the global rankings for median wealth per adult, as measured in US dollars ($US238,070 per adult).

That’s ahead of Belgium ($US230,550), Hong Kong SAR ($US173,770) and New Zealand ($US171,620).

It said Australia was now home to 1.8 million millionaires (or 3.2 per cent of the world’s total), after recording the third-largest increase in the number of millionaires (up 392,000).

That means almost one in 10 Australian adults are now a US dollars millionaire.

Michael Marr, head of private banking at Credit Suisse Australia, said the Reserve Bank’s decision to push interest rates to record lows was probably the biggest contributor to Australia’s performance in the Global Wealth rankings, because it fuelled equity and housing market increases across the country.

However, economist and report author Anthony Shorrocks also made the point that global wealth creation in 2020 appeared to be “completely detached” from the economic woes resulting from COVID-19.

“If asset price increases are set aside, then global household wealth may well have fallen,” he noted.

“In the lower wealth bands where financial assets are less prevalent, wealth has tended to stand still, or, in many cases, regressed.”

By business reporter Gareth Hutchens (Original ABC Article)