Shares and property boost Australian household wealth

Australian household wealth hit new highs in the December 2017 quarter, boosted by higher share and property prices. However, continued share market volatility could hurt household wealth.

Household net worth rose to $10.19 trillion in the December 2017 quarter, up from $10.0 trillion in the September quarter, according to data from the Australian Bureau of Statistics (ABS).

Net Australian household worth, or 67 per cent, was made up of $6.84 trillion of property assets and $5.04 trillion of financial assets such as cash, terms deposits and shares.

Households held a record $1.1 trillion in cash and deposits at the end of December. Cash and deposit holdings represented 21.7 per cent of financial assets, down from 22 per cent in the September quarter but still just above the long-term average of 21.6 per cent.

Households held a record $937 billion in shares or 18.6 per cent of all financial assets. Superannuation fund assets rose by $83.5 billion to $2,184 billion in the December quarter. Household liabilities amounted to $2.34 trillion.

Financial assets were the largest contributor to growth in household net worth during the quarter, rising 2.5 per cent. This result was in part driven by a 2.8 per cent increase in shares and other equities, the ABS said.

Household residential land and dwellings was the next largest contributor to growth, increasing 1.4 per cent in December quarter 2017, a stronger result than the 0.7 per cent fall reported in the September quarter 2017.

According to CommSec chief economist Craig James, Australians have never been wealthier.
“While some worry that incomes are growing at a slower pace than in the past, the value of bank accounts, homes and shares continues to rise.

“On average, Australians each have net assets (assets less liabilities) of just over $400,000, a total that has lifted by over $16,000 in the past year. Assets are up 5.9 per cent over the year, still well in front of the 5.4 per cent lift in loans,” James says.

“The rising and record wealth position is great news for retailers, serving to underpin spending. Looking ahead though, share and home prices have flattened, likely putting a break on wealth in the March quarter.”

In per capita terms, CommSec estimates that wealth rose to a record $411,229 at the end of December, up by $6,394 over the quarter and up around $16,254 over the year.

Rising property prices have accounted for much of the increase in household wealth. Australian household net worth has increased $2.43 trillion since 2013--up to $8.14 trillion from $5.70 trillion. Around 57 per cent of this increase is attributed to the growing equity of owner occupied homes, according to a report from Roy Morgan Research.

Home owners account for a significant proportion of the wealth holdings. Although people living in owner occupied homes accounted for only 65.2 per cent of the population as at 30 September 2017, they held 85 per cent of the total funds in superannuation, 89.7 per cent of all direct investments and 86.9 per cent of bank deposits.

These assets combined with the equity in their homes, results in them holding 94.4 per cent of total households' net worth. This leaves those who are non-home owners--34.8 per cent of the population--with just 5.6 per cent of the total.

These findings are backed by separate ABS data. High wealth households increased in real terms, from an average net worth of $3 million in 2015–16, up from $1.9 million in 2003–04. Middle wealth households had an average net worth of $528,400 in 2015–16, compared to $401,000 in 2003–04, with these figures adjusted for inflation.

Low wealth households did not experience any real increase in net worth over this time, with the average net worth of $36,500 in 2015–16, similar to 2003-04 when it was $33,000.

The ABS said one factor driving the increase in net wealth of high income households is the value of owner-occupied and other property. For high wealth households, average total property value increased by $878,000 between 2003-04 and 2015-16, from $829,200 to $1.7 million.

For middle wealth households, average property values increased by $211,200, from $258,000 to $469,200. Low wealth households that owned property had much lower growth of $5,600, to $28,500 over the 12 years.

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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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