Australia tumbles down global wealth rankings

Credit Suisse has released its 2019 Global Wealth Report, which reveals that the recent housing bust has pushed Australia down the wealth rankings, falling from second place to fourth:

According to Credit Suisse:

Household wealth in Australia grew quickly between 2000 and 2012 in USD terms, except during 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 after 2012, with the Australian dollar declining 33% relative to the US dollar. The result is that wealth per adult in 2019, at USD 386,058, is close to its 2011 level of USD 384,640. In real AUD terms, however, wealth per adult today is 16% above its 2011 level. Despite the exchange rate effects, Australia’s wealth per adult is fourth highest in the world in US dollars. In terms of median wealth, it ranks second after Switzerland.

The composition of household wealth in Australia is skewed toward non-financial assets, which average USD 275,420 and form 58% of gross assets. The high level of real assets reflects a large endowment of land and natural resources relative to the population, but also high property prices in the largest cities. While financial assets are just 42% of total assets, they are also high in absolute terms in part because of Australia’s mandatory superannuation system, which generates strong pension wealth. Average debt is 19% of gross assets.

High average wealth is combined with relatively low wealth inequality in Australia. The Gini coefficient is just 66% and only 7% of Australians have net worth below USD 10,000. The latter figure compares with 17% in the United Kingdom and 27% 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 66%, is one of the highest in any country and about six times the world average. With 1,307,000 people in the top 1% of global wealth holders, Australia accounts for 2.6% of this top slice, although it is home to just 0.4% of the world’s adult population.

The decline in property prices has also seen the number of millionaires decline:

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 $A248,500 per person as at June 2019:

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 $300,000 instead of $600,000, 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.

Leith van Onselen
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