Aussie households world’s wealthiest thanks to expensive homes

By Leith van Onselen

Credit Suisse has released its 2017 Global Wealth Report, which reveals that Australian households are the wealthiest in the world when measured by median wealth:

Household wealth in Australia grew at a fast pace between 2000 and 2012 in US dollar terms, except for a short interruption in 2008. The average annual growth rate of wealth per adult was 12%, with about half due to exchange-rate appreciation against the US dollar. The exchange-rate effect went into reverse for three years after 2012 and, like other resource-rich countries, Australia was badly hit by sagging commodity prices. Despite that slowdown, Australia’s wealth per adult in 2018 is USD 411,060, the second-highest in the world after Switzerland. In terms of median wealth, it has edged above Switzerland into first place.

The composition of household wealth in Australia is heavily skewed toward non-financial assets, which average USD 304,500, and form 60% of gross assets. The high level of real assets partly reflects a large endowment of land and natural resources relative to population, but also results from high property prices in the largest cities. While financial assets are just 40% of total assets, they are also high on average, in part reflecting Australia’s mandatory superannuation system, which generates strong pension wealth. Average debt amounts to 19% of gross assets.

High average wealth is combined with relatively low wealth inequality in Australia. The Gini coefficient is just 66% and only 6% of Australians have net worth below USD 10,000. The latter figure compares with 18% in the United Kingdom and 28% in the United States. The high average wealth boosts representation at high wealth levels, despite the low inequality. The proportion of those with wealth above USD 100,000, at 67%, is the fourth-highest of any country, and about seven times the world average. With 1,596,000 people in the top 1% of global wealth holders, Australia accounts for 3.2% of this top slice, despite being home to just 0.4% of the world’s adult population.

One of the “benefits” of having one of the most expensive housing markets in the world is that it inflates the value of household wealth. As shown in the next chart, Australia’s dwelling stock (both land and buildings) was worth $264,000 per person as at June 2018:

Australians along with their Kiwi cousins also have a particularly high exposures to property and a low share of wealth stored in liquid financial assets (see below IMF charts).

Housing Wealth
Household Financial Wealth
Household Net Wealth

However, as I have pointed out previously, is having the lion’s share of one’s wealth stored in illiquid housing really all that beneficial? We all need somewhere to live and higher home values serve little purpose to the vast majority of owner-occupiers, who typically must sell and buy into the same market. Expensive housing also punishes those who have recently entered, or are yet to enter, the housing market, who are required to either take-out mega-mortgages and have a life of debt slavery, or miss-out altogether.

Would Australians really be worse-off if the median capital city dwelling was $325,000 instead of $650,000, mortgage debt was 70% of disposable incomes instead of 140%, and the banking sector was smaller and less profitable?

The answer is obviously no. Lower debt loads would make households better-off, whereas the broader economy would benefit from the productivity-boosting effects of lower land prices, increased business lending (investment), and a more balanced economy.

It is precisely Australia’s obsession with housing that is killing productivity.

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