We’re wealthier than ever thanks to property

Pictures from the auction of 1A Johnson Street Chatswood in Sydney

If you’re feeling wealthier than ever before right now, that’s because you probably are.

At least that’s the bottom line from the latest Bureau of Statistics data on total household wealth covering the three months to the end of December.

The data show total net household wealth grew by 4.3 per cent over the final quarter of 2020, the fastest rate in the 12 years since the end of the GFC, to a record $12 trillion.

Before the deduction of debt, gross household wealth totalled more than $14.5 trillion.

You can count on household wealth having risen even further since then based on the ongoing surges in both the housing and financial markets, although the numbers for the March 2021 quarter aren’t available as yet.

But going back to the end of 2020, the average Australian net wealth per person (after debt) was $467,709. That represented an increase of more than $19,000 over the previous quarter.

As impressive as all these numbers are, it’s only when you delve deeper into the statistics that you get a clearer view of the broader Australian wealth picture.

It’s not surprising that the bulk of household wealth is tied up in real estate — primarily in the family home and, to a lesser extent, investment properties.

By value, the family home is the biggest single investment asset for most households.

Classified as “land and dwellings” by the ABS, residential real estate accounted for $7.8 trillion (53.3 per cent) of all household wealth at the end of 2020. That was after a $246.5bn surge in residential property values over the December quarter.

As expected, this was (and continues to be) fuelled by strong buyer demand, record low rates, readily available finance, and government support programs.

But household wealth is also being driven up by the robust growth on global sharemarkets.

That’s reflected by the large value increase in Australia’s total super pool over the December quarter as well as the rise in the value of shares and other financial assets held by households outside of superannuation.

Household super assets are continuing to grow exponentially, thanks to the compulsory 9.5 per cent super guarantee levy — which will soon rise to 10 per cent — and as a result of compounding investment returns.

Over the December quarter super assets rose by $166.2bn to $3.3 trillion or about 23 per cent of total household wealth.

In the same period, the value of household assets outside super invested into shares and other securities increased by $60.6bn to $1.1 trillion. Collectively they accounted for about 8 per cent of household assets.

According to the ASX, about seven million Australians directly own listed shares and other financial securities.

So it can be safely assumed a large number of households have benefited from the local sharemarket’s more than 38 per cent rise over the past year and solid gains on international markets.

Offsetting the strong performances of the housing and financial markets are the negative returns being made on cash holdings.

The ABS data shows Australian households are holding 9 per cent of their wealth in what it calls “currency and deposits” — most of which is earning between zero and 1 per cent annually.

The total value of household cash assets grew by $29bn in the December quarter (or by about $3bn per week) to $1.3 trillion.

Much of that cash may be on hand to fund everyday living costs, and as a financial buffer to cover unexpected falls in income, although averaged-out the total works out to more than $50,000 for every Australian.

The ABS’s quarterly data is only a general gauge of personal wealth but, at the very highest level, it does show that more than half of household assets are locked up in residential property.

Roughly a quarter is then tied up in retirement savings accounts.

Purely on an asset allocation level, it’s evident there may be room for many households to take a closer look at their asset holdings to see how they align with their financial goals.

Tony Kaye is senior personal finance writer with Vanguard Investments Australia.