Grow Magazine

Australian dream now rests on super

August 2016

Our long-held hope of home ownership is increasingly out of reach for many.

Rising property prices and low wage growth means the basis of our wealth is changing, writes Heather Jacobs.

With much of the younger generation unable to get into the housing market, superannuation looks set to overtake the family home as Australians’ most important asset, according to the latest Household, Income and Labour Dynamics in Australia Survey.

Interviewing 17,000 Australians each year, the government sponsored report paints a comprehensive picture of family life, economic wellbeing, household wealth, housing wealth and super. It was conducted by the Melbourne Institute of Applied Economic and Social Research.

Two-thirds of homes in Australia are owner-occupied, the rest are occupied by renters. The mean value of owner-occupied housing was $392,241 in 2014. However, the proportion of adults who are home owners dropped from 57 per cent in 2002 to less than 52 per cent in 2014 and is expected to drop below 50 per cent next year.

Currently the second-most important source to increase wealth is superannuation. And it is rapidly becoming the most important asset for households. This shift in importance from property to superannuation comes as the superannuation guarantee, introduced in 1992, means more people have been contributing to super for much of their working lives. Super is now held by 84 per cent of households, with a mean value across all households of $186,000 in 2014. This is up from $112,000 in 2002, when 76.9 per cent of households had super.

The average annual disposable income per household (at December 2014 prices) rose to $76,000 from $58,000 in 2001 – an increase of just over 25 per cent. Much of that growth occurred between 2003 and 2009, and has since stagnated.

At the same time, the mean wealth of Australian households increased by 36 per cent in real terms to reach $742,209 in 2014. Again, much of that growth occurred between 2002 and 2006; since then, mean wealth has declined by 1.2 per cent.

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The big gap between the young and the old

The wealthiest households in Australia are now couples aged over 65. Their median net wealth has increased 70 per cent since 2002.

The case is slightly different for individuals. Their net median wealth grew by:

  • 61 per cent for those over 65
  • 39 per cent for people aged 55 to 64
  • 0.8 per cent for those aged 45 to 54
  • 7.4 per cent among people aged 35 to 44
  • 3.2 per cent among people aged 25 to 34.

The high cost of real estate is putting pressure on the younger generations, while older generations benefited from the large increases in house values, says survey author, Professor Roger Wilkins at the University of Melbourne.

“Between 2001 and 2014, owner-occupied houses have declined by 3.5 percentage points,” he says. “That translates to 700,000 Australian homes. It is likely that in the next few years less than half of adults will be home-owners.”

Drilling down by age group, for those aged 25 to 34, home ownership dropped from 39 per cent to 29 per cent in 2014; for those aged 35 to 44, it dropped from 63 per cent to 52 per cent; and for those aged 45 to 54, it dropped from 76 per cent to 67 per cent.

Leading economist Saul Eslake has long warned it is becoming increasingly difficult for Australians of modest-to-average means to become first home buyers, particularly in Sydney and Melbourne. In any given year only about 100,000 people become first-time home buyers.

Furthermore, Australia’s retirement income system rests on an “implicit assumption” that most retirees own a home outright, he told The Sydney Morning Herald in an article discussing the HILDA report. Having more retirees who are non-homeowners puts additional pressure on the federal budget while the high cost of housing means more people will reach retirement age still paying off their home loan, which they may use their super to pay down leaving, in turn leaving them less to live on.

In 2014, home debt was nearly double 2002 levels. Furthermore, between 2002 and 2010, the mean value of household assets grew by 42 per cent, while the mean value of debt grew 87 per cent. Debt continued to grow at a faster pace than assets between 2010 and 2014. The mean net home wealth (home value minus home debt) was $291,552 in 2014. 

Do Australians have enough super?

Average super balances of both men and women tended to grow between 2002 and 2014, but again, increases were heavily concentrated among the over 60s, presumably driven by the Howard government’s decision in 2006 to exempt all super earnings and drawdowns in retirement from income tax. There was essentially no growth in average super balances among men and women aged under 35.

The Association of Superannuation Funds of Australia estimates it takes $545,000 for a single person or $645,000 for a couple to live a comfortable lifestyle in their retirement. For those playing catch-up, this means making voluntary contributions. The association estimates only 7 per cent of Australian employees are making extra contributions to their super, the majority of these people aged over 55.

What else is driving household wealth?

Apart from the family home and super, household wealth is spread across four key areas.

  • Investment properties: The proportion of households holding other property grew from 16.5 per cent in 2002 to 21 per cent in 2014 with a mean value of $138,718.
  • Equity investments: The proportion of households directly investing in the sharemarket steadily fell from 40.6 per cent in 2002 to 30.7 per cent in 2014. This may reflect a shift from directly holding equities to holding them through super funds. The mean value peaked in 2006 at $56,402, declined to $40,815 in 2010 and rose again to $44,166 in 2014.
  • Bank accounts: Share of wealth in bank accounts has risen slightly since 2002 when they accounted for 6 per cent of net wealth, accounting for 6.9 per cent of net wealth in 2014.
  • Ownership of businesses: The number of Australians owning businesses dropped between 2006 and 2014, with 10.4 per cent of households owning businesses in 2014 compared to 12.8 per cent in 2006. Furthermore, the mean value of business wealth declined over this time, from $60,327 in 2006 to $39,807 in 2014.