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Wealth inequality in Australia and the rapid rise in house prices

Wealth inequality in Australia and the rapid rise in house prices

The research highlights the uncertainty of the lives of low-income people in Australia. Credit: Shutterstock

A report launched today by UNSW Sydney and the Australian Council of Social Services (ACOSS) Poverty and Inequality Partnership confirms that while Australians are now the fourth richest people in the world on average, the distribution of our wealth remains vastly unequal.

The Wealth Inequality Pandemic: COVID and Wealth Inequalitysays our total household wealth has grown as much in the past three years as it has in the past 15 years — despite the COVID-19 pandemic and the 2020 recession — primarily due to the rising cost of housing across the country over that period.

The impact of rapidly rising house prices

More than two-thirds (69%) of the total increase in household wealth during the pandemic was in homes, which increased in value by 22% over the year to December 2021 – the highest annual increase in 35 years.

Rising house prices are widening the gap between people who bought their homes when they were more affordable and younger people and those on low and modest incomes who don’t own their own homes or are struggling with rising rents and mortgage payments.

“Again, this report reminds us that wealth in Australia is very unevenly distributed. We have over 130 billionaires in this country and last year their wealth grew by an average of $395 million or 12%. It means they now own almost as much wealth as the 2.8 million households in the lowest 30% of the population,” said Scientia Professor Carla Treloar, director of the UNSW Social Policy Research Center (SPRC) and the Center for Social Research in Health (CSRH).

“This research makes clear that we have an economic model that brings profit to the richest at the expense of the least fortunate in our community, and it is time to address inequality in our economic system and make it fairer for all.”

Edwina MacDonald, acting CEO of ACOSS, says everyone deserves a roof over their heads and a home that meets their basic needs for shelter.

“It’s just wrong that something so basic has become so difficult for people on low and modest incomes.

“This survey also highlights the precariousness of the lives of low-income people in Australia, of whom 39% are unable to cover three weeks of lost income. There is also a need to strengthen the social safety net so that unemployment does not inevitably leads to poverty.”

The report notes that while the situation has deteriorated significantly of late, it is not new. Between 2003 and 2021:

  • home ownership among 25-29 year-olds decreased from 44% to 38% and among 30-34 year-olds from 57% to 50%
  • the proportion of a household’s median disposable income needed to pay off a typical home mortgage increased from 27% to 41%
  • the proportion of median household disposable income needed to pay median rent increased from 26% to 31%.

Of the nearly 50,000 rental listings surveyed by Anglicare Australia in May 2022, only seven were affordable (costing less than 30% of income) to a single adult on a jobseeker’s payment. Only nine were affordable for a single parent on jobseeker’s benefit with one child.

Previous reports in this series have shown how the early pandemic-related income support and housing benefits offered by the government have lifted people out of poverty. This report shows that, with a return to “normal settings” and the end of that support, mortgage increases and higher rents are putting people on low and modest incomes under incredible financial pressure.

Inequality in households

The survey found that household wealth in Australia is very unevenly distributed.

  • The top 10% of households by wealth have an average of $6.1 million or 46% of all wealth.
  • The next 30% have an average of $1.7 million or 38%.
  • The majority – the bottom 60% – have an average of $376,000 or just 17% of all wealth.

More than 130 billionaires in Australia each have an average net worth of $3600 million.

Because there is less inequality in owner-occupied home wealth than other assets such as stocks and real estate investments, the recent increase in housing wealth has eased the wealth inequality growth that has been underway for the past two decades. The top 10% of households by wealth owned 42% of all wealth in 2003, rising to 47% before COVID in 2018, then falling to 46% in 2021.

This report also shows that due to our high and rapidly growing house prices and relatively easy access to credit, Australian households are overburdened or “more in debt” than many other rich countries. The Organization for Economic Co-operation and Development (OECD) considers households in the lowest 40% of income with debt at least three times their annual disposable income as “over-indebted” and nearly a third of low-income households in Australia is currently in this position .

The main findings of the report

  • Households in Australia are on average the fourth richest in the world, but many are financially vulnerable due to high debt or low financial buffers.
  • Family wealth has grown at the same rate in the past three years as in the previous fifteen years. Two-thirds of the increase in prosperity came from house price inflation. Home values ​​rose 22% over the year to December 2021, the highest annual increase in 35 years.
  • Wealth inequality increased sharply from 2003 to 2018 and then declined slightly during the pandemic. Rising house prices moderated overall wealth inequality, as housing is more evenly distributed among the population than other types of wealth, but left younger and low-income people without their own homes.
  • Household wealth is still very unevenly distributed: the richest 10% of households have an average of $6.1 million and almost half of all wealth (46%), while the lower 60% (with an average of $376,000) have only 17 % of all wealth has .

This is the fourth and final report of the collaboration Building back fairer Series designed to help us understand the impact of the COVID pandemic and government responses to it, on people’s income, wealth, employment and housing, and assess which groups and regions were most affected.

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Provided by the University of New South Wales

Quote: Wealth inequality in Australia and the rapid rise in house prices (2022, July 22) retrieved July 23, 2022 from https://phys.org/news/2022-07-wealth-inequality-australia-rapid-house.html

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