‘Safe as houses’: homes the foundation of our prosperity

Australians’ reliance on residential property as their source of wealth is helping to broaden the financial gap between those who own a home and those who do not, experts say.

The value of Australia’s housing and land pool has skyrocketed from $4.8 trillion to $10.3 trillion in a decade.

Australians’ reliance on residential property as their source of wealth is helping to broaden the financial gap between those who own a home and those who do not, experts say.

Over the past decade, the value of Australia’s housing and land pool has skyrocketed from $4.8 trillion to $10.3 trillion, a figure that outpaces the worth of the stock exchange, superannuation and commercial property combined.

The massive increases have largely been due to the rising cost of homes – which have grown in price by 40 per cent nationally in the past four years alone – and has caused the portion of household wealth tied up in property to climb to 56.2 per cent. While the portion is lower than in boom-time periods of 2002 to 2004, 2008 to 2011 and 2002, it is a considerable jump on levels through the late 1980s and 1990s by around 50 per cent.

CoreLogic’s head of research, Eliza Owen, said the figures highlighted homeowners’ increased reliance on the asset over time, with the surge coinciding with the divergence in price and income growth and the introduction of capital gains tax: “We like to invest in things that are tangible and it suggests Australians have a particular affinity with real estate as a vehicle for building wealth.”

Ms Owen said Australians were increasingly using housing as a nest egg for retirement and a way to create wealth to pass on to younger generations, and it was going to have implications on housing affordability and homeownership moving forward. “(Our reliance is) going to make it harder for us to move towards more affordable housing because instead of weaning Australians off residential real estate as a source of growing their wealth and their nest egg, it’s become increasingly important.”

PropTrack economist Anne Flaherty said the wealth gap between those with housing and those without was growing, particularly as the undersupply of housing continued to forces prices higher. “Looking at construction versus how our population is growing, the under-supply of housing in Australia is set to worsen over the next few years,” she said.

“What that means is that regardless of other economic headwinds, we’re probably going to see property prices continue to rise, and it’s going to become even harder to get into the market.”

Australians’ reliance on real estate as a vehicle for wealth is comparatively higher than that of Canada, Britain and New Zealand and is second only to the US, but real estate firm Ray White’s managing director, Dan White, said robust levels of homeownership levels to date were a good marker of generational housing equity.

People have decided, as their wealth goes up, to continue to invest in the real estate market,” Mr White said. “When you look at their choice between investing in Australian equities or bonds, real estate has performed very well at levels that justify continued investment.”

Australia’s appetite to use property is unique compared with the US and UK, where rental properties are more readily managed by private institutions and investment trusts, said Paul Bloxham, HSBC chief economist for Australia, New Zealand and Global Commodities.

“In Australia, the vast majority of rental stock is owned directly by the household sector and part of that reflects the tax system advantages such as negative gearing,” he said. “That it helps to explain why a bigger share of household wealth in Australia is tied up in dwellings”

In terms of whether the adage “safe as houses” is true compared to other investment options, he was more coy. “At an aggregate level, we see a lot more movement in ­equity prices .. than in aggregate housing prices,” he said. “But ­people buy individual houses, which come with unique risks.”