Housing bubbles make Sydney/Melbourne residents nation’s wealthiest

Roy Morgan Research has released its latest personal net wealth rankings, which show that Sydney and Melbourne have gone to the top on the back of soaring housing values:

In the year to December 2007 just prior to the GFC the average net wealth (personal assets minus debt) per capita for Perth, was the highest in Australia at $338k. This was well ahead of Sydney on $292k and Melbourne on $268k who also trailed ACT ($329k) and Country WA ($303k). By March 2019 Sydney was in top place at $570k followed by Melbourne on $491k, Perth had dropped significantly with average net wealth of $358k, 37% behind top ranked Sydney. Country areas in WA also went from being ranked behind only Perth and the ACT in 2007 to near the bottom in 2019…

The following chart shows that in 2007 Perth had the highest per capita net wealth of all major Australian cities with $338k, followed by Sydney ($292k), Melbourne ($268k), Brisbane ($264k), Hobart ($242k) and Adelaide ($223k).

Country WA with an average net wealth of $303k was much higher than all other regional areas in 2007, with the closest being country QLD on $256k. Country WA also had a higher average wealth than Sydney, Melbourne, Brisbane, Hobart and Adelaide…

The average net wealth of Sydneysiders in the year to March 2019 was $570k, making it the clear leader from second placed Melbourne ($491k) and ACT ($441k). The chart above shows that Perth has fallen well back in the rankings with an average of $358k. Country WA has also gone from being ranked behind only Perth and the ACT in 2007 to being ranked below every capital city in 2019.

Michele Levine, CEO of Roy Morgan, says:

“These wide variations in growth rates have a lot to do with real estate prices where Sydney and Melbourne have generally shown the greatest increases. Evidence for the impact of this is that there is a much higher proportion of personal wealth in NSW held in owner occupied homes (52.9%), compared to some other lower value States such as SA where it is only 42.9% and 46.1% in WA”.

Interestingly, the latest ABS Finance & Wealth data showed that household net worth fell by $22 billion over the March quarter on the back of falling housing values:

Chief Economist for the ABS, Bruce Hockman, said: “Residential real estate experienced its fifth consecutive quarter of real holding losses. However, household wealth per person fell by only $1,500 to $404,566 per person in the March quarter reflecting the impact of the rebound in the share market coming mainly through household superannuation reserves.”

Regular readers will know that I don’t believe that wealth gains driven via expensive and illiquid housing is positive.

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.

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