Revealed: The Households With Surging Wealth and Those Standing Still

The wealth of the average Australian household has surged past $1 million but low-income families have not seen any increase in their net worth for more than a decade.

Despite a record 28 years of uninterrupted economic growth, new figures show debt has outstripped national incomes for the first time, fewer than 30% of workers own their home outright, and one in three homeowners are in mortgage stress.

The story of the economy's increasing wealth disparity has been revealed by the Australian Bureau of Statistics, with the gap between the asset rich and income poor at its widest in decades.

Wealth

Every two years, the ABS surveys thousands of Australians on their income and wealth. It divides households into five groups from the lowest 20% by income or wealth to the highest 20%. There are about 2.1 million households in each of the five groups.

The survey shows high-wealth households increased their average net worth from $1.9 million in 2003-04 to $3.2 million in 2017-18. Over the same period, middle-wealth households increased their average net worth by $148,700.

But low-wealth households have not experienced any real increase in net worth. Their average net worth of $35,200 in 2017-18 - less than $1000 higher than in 2003-04 - is equivalent to less than 1 per cent of all household wealth in Australia.

The disparity has been driven by increases in superannuation balances and the housing market, pushing the average household wealth past the $1 million mark for the first time.

The wealthiest households still hold more than 60% of all household wealth, while the middle fifth control 11%.

The ABS reported that wealth inequality increased over the past two years and is now at its highest level since the survey began in 1993-94.

Incomes

As the asset-driven wealth gap has widened, incomes generated by employment have failed to keep up. Average weekly disposable household incomes have grown by just $44 over the past decade.

In the four years to 2007-08, average weekly household incomes grew by $220. They dipped in the immediate wake of the global financial crisis before reaching $1067 in the 2013-14 survey.

They fell the following survey and lifted by just $8 a week to $1062 in the 2017-18 survey.

In NSW, those in the lowest 20% of income earners have actually seen their incomes go backwards in real terms since 2015-16, falling from $412 a week to $397 a week. They are only $6 a week higher than in 2011-12.

Victoria has done better at maintaining income growth across the economy, with all incomes rising. But those in the middle 20% are only $1 better off than they were in 2013-14.

The biggest increase has been for people in Tasmania, where disposable incomes jumped by $83 to a record high of $922, with households across all income ranges getting a boost.

The largest slump has been in Western Australia, where disposable incomes are $157 lower than their peak in 2013-14, when the state was in the midst of a mining boom.

Overall, the richest households continue to be in NSW - with its top 20% earning almost $300 more per week than their southern neighbours.

The figures are likely to continue to fuel the debate about Australia's torpid wage growth.

The passage of more than $300 billion in income tax cuts since the data was collected will help most income earners in the short term, with a $1080 tax boost due from July, but by 2024, the largest benefits will flow to higher-income earners through a flattening of the tax system.

Homeownership

A key element of Australians' wealth, and into which goes a large proportion of income is a home.

But the survey reveals homeownership is at its lowest level on record.

In 2017-18, with house prices in Sydney and Melbourne at record highs, the proportion of Australians owning their home outright fell below 30% for the first time.

The proportion holding a mortgage is at 36.7%, slightly down on 2015-16 but still the second-highest rate in the history of the survey.

Another 32% are renting - an all-time high.

Rents in almost every capital city have either fallen or barely climbed since the survey was conducted, suggesting the rental population may have grown even further.

Since 2009-10, in the immediate aftermath of the global financial crisis, the proportion of people owning their home has fallen by 10% while the proportion of renting has grown by 11%.

Renters are also increasingly likely to be reliant on the private market for their home.

In 1994-95, 5.5% of people were renting through a state government agency with another 18.4 per cent having a private landlord.

By 2017-18, the state agencies were renting to 3.1 per cent of the population. A record 27.1% of people were paying rent to a private landlord.

The lift in renters points to possible long-term effects on the wealth of many Australians.

Property, dominated by owner-occupied houses and units, accounts for a quarter of assets of low-wealth households. Just 5.5% of low-income households actually hold property.

Among middle- and high-wealth households, property ownership is more than 94%. Property accounts for 57% of the wealth of middle-income Australians and 35% of high-wealth people.

Debt

Australians are holding more debt than they are earning in income for the first time as record numbers of households battle super-sized mortgages.

The bureau found that in 2017-18, the median debt-to-income ratio hit 110% or $1.10 in debt for every dollar of income.

After holding steady following the global financial crisis until 2013-14, median debt to income jumped by more than 20%.

It coincided with the sharp run-up in house prices, particularly in Sydney, Melbourne and Hobart, as households without solid income growth resorted to loans from the local bank to buy into the property market.

While total debt levels are up, the proportion of Australians holding extreme levels has reached new heights.

More than 30% of the poorest households is carrying debts three times their income. A decade ago, the proportion was less than 23%.

But it is not an issue confined to those with low incomes. The proportion of high-income households with the same level of debt has also reached a record high of 29.5%.

Across all income groups, there has been an increase in high levels of debt, particularly since the take-off in the property market in 2011. In the past two years, there has been a near 5% increase in the number of high-debt households.

The major source of debt is property. Among high-wealth households, property loans account for 90% of their debt, with almost half having a mortgage of some sort.

Fifty-seven per cent of middle-income households have property loans, which account for 93% of their total debt.

Lower-income households are less likely to have property debt but more than a quarter of their outstanding loans are for university or vocational education.

While debt is up, the total proportion of Australians in hock has not changed and remains at just above 72%.

In one area, Australians have tried to keep on top of their debt issues. Between 2003-04 and 2017-18, the average credit card debt lifted from $3500 to $4400. Among low-income households, credit card debt was largely stable at $1900.

Keeping up with debt is proving a major issue for many households. While total household equivalised annual income climbed by $728 between 2015-16 and 2017-18, total liabilities rose by $9000.

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Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan. Originally sourced from an article on SHM - called 'Revealed: The households with surging wealth and the households standing still' by Shane Wright and Eryk Bagshaw.