Household Wealth

1. Household Wealth Leanne Johnson Regional Research Leader BITRE

2. Outline • Background and objectives • Methodology • National overview • Small area estimates of wealth for 2003-04 • Recent changes • Wealth and income • Wealth and consumption • Outputs

3. Background • Net worth = value of household assets minus liabilities • Assets: housing, vehicles, bank accounts, superannuation, shares, businesses, dwelling contents etc • Liabilities: property loans, HECS debt, credit card debt etc • Why is household wealth of interest? • Wealth contributes to economic wellbeing by • Generating income • Supporting consumption • Providing economic security

4. Objectives • Develop & analyse new measures of household wealth for Australia’s regions • Improve understanding of household wealth & its relevance to regional wellbeing • Explore relationship between regional wealth & regional income

5. Methodology • Small area estimation • ABS Survey of Income and Housing 2003-04 • Provides capital city/state balance benchmarks • Small area data sources: • Valuer General’s data on property sales • ATO Taxation Statistics • Census data • Other ABS data • Estimates produced for 1135 Statistical Local Areas • Exclusions: very remote, indigenous & less than 500 households

6. National overview

7. Composition of household wealth, 2003-04 (ABS SIH) Asset Mean Liability Mean Owner occupied dwellings $249 000 Loans on owner occ.dwellings $40 000 Other property $70 800 Loans on other property $19 900 Total property assets $319 800 Total property loans $59 900 Superannuation $63 500 All other liabilities $9 500 Dwelling contents $47 400 Total liabilities $69 400 Net business assets $38 400 Bank accounts $21 100 Shares $18 200 Vehicles $17 200 Other assets $10 700 Total assets $537 100 Net worth $467 600

8. Composition of household wealth, 2003-04 (ABS SIH) Asset Mean Liability Mean Owner occupied dwellings $249 000 Loans on owner occ.dwellings $40 000 Other property $70 800 Loans on other property $19 900 Total property assets $319 800 Total property loans $59 900 Superannuation $63 500 All other liabilities $9 500 Dwelling contents $47 400 Total liabilities $69 400 Net business assets $38 400 Bank accounts $21 100 Shares $18 200 Vehicles $17 200 Other assets $10 700 Total assets $537 100 Net worth $467 600

9. Composition of household wealth, 2003-04 (ABS SIH) Asset Mean Liability Mean Owner occupied dwellings $249 000 Loans on owner occ.dwellings $40 000 Other property $70 800 Loans on other property $19 900 Total property assets $319 800 Total property loans $59 900 Superannuation $63 500 All other liabilities $9 500 Dwelling contents $47 400 Total liabilities $69 400 Net business assets $38 400 Bank accounts $21 100 Shares $18 200 Vehicles $17 200 Other assets $10 700 Total assets $537 100 Net worth $467 600

10. Key messages from wealth literature • Wealth is very dependent on age • Peaks for 55-64 age groups • Wealth is unequally distributed compared to income • Wealthiest 10% own more than 40% of wealth • But wealth inequality is not increasing

11. Average wealth, capital cities & state balances, 2003-04

12. BITRE’s small area estimates of wealth

13. BITRE’s small area estimates of wealth, 2003-04

14. Average household wealth, Australia, 2003-04

15. Average household wealth, Sydney, 2003-04

16. Average household wealth, Melbourne, 2003-04

17. Average household wealth, Central QLD, 2003-04

18. Household indebtedness

19. Debt to asset ratio, Sydney, 2003-04

20. Debt to asset ratio, Townsville, 2003-04

21. Changes in wealth, 2003-04 to 2005-06 • Liabilities grew more rapidly than assets • Net business assets grew vary rapidly in cities • Regional areas experienced greater growth than capital cities in all states but WA • Sydney experienced the lowest growth in wealth • Property values: • Declined in Sydney’s south and west • Grew very strongly in QLD mining towns & around Bunbury

22. Wealth and income

23. Relationship between wealth and income • Compared to 2003-04 RIPT • Excluding top wealth decile reduces correlation to 0.26

24. How often do the regional wealth & income estimates differ markedly? Gap between the wealth and income rankings • exceeds 500 places for 19% of SLAs • exceeds 250 places for 45% of SLAs • 20 SLAs are in highest wealth quintile & lowest income quintile • 16 SLAs are in lowest wealth quintile & highest income quintile

25. In what circumstances do regional wealth & income data provide contrasting messages? • Wealth outperforms income: • Agriculturally-based SLAs • Sea-change communities • Income outperforms wealth: • Mining communities • Apartment dwelling SLAs • Mortgage-belt SLAs • Most SLAs in Darwin, Townsville & Cairns • When region has a particularly old or young age structure

28. Other findings on wealth-income relationship • Regional differences in age structure explain 47% of gap between regional wealth & income rankings • Wealth displays more spatial variation than income • Regional wealth: CV=34% • Regional income: CV=19% • Reliance on regional income data may understate the extent of regional disparities

29. Wealth and consumption

30. Wealth supports consumption • Through running down cash reserves, selling assets or using assets as collateral to borrow funds • House price growth supported particularly strong consumption growth between 2003 and 2005 • Increased housing equity withdrawal financed consumption • Marginal propensity to consume out of wealth: 0.02 to 0.06

31. Wealth boosts consumption for low income households

32. Outputs • Measuring the economic wellbeing of Australia’s regions conference paper – late August • Focus on Regions 5: Household Wealth information paper • Household Wealth Database <www.bitre.gov.au>