More experts weighing in

From Robert Gottleibsen at The Australian today…

Understand the new dynamic of Australia. Businesses that don’t could face a tough time.

The latest ABS household income and wealth survey raises all sorts of alarms about the rising debt of certain sectors of the population, particularly younger people buying homes and those punting the property market with negatively geared loans.

The Australian Bureau of Statistics is putting numbers to forces we have observed in our neighbourhoods, particularly those who live in Sydney.

However what we are seeing in those debt levels is a surface manifestation of much deeper trends in the society.

Hey how about this for good news! Back 13 years ago the average Australian had net worth of just over $600,000 and that’s risen to just over $900,000 — that’s a 50 per cent rise.

The ABS has done some calculations that makes the improvement in “my wealth” in recent times even better.

They take the 2015—16 average Australian household wealth (net worth) of $929,400 and then adjust it for inflation and discover that, average wealth has increased by 11 per cent since 2013—14.

That’s a lot better than money in the bank at today’s interest rates.

And the share market, on a risk for reward basis, is also well behind.

Better still, the average Australian is not borrowed to the hilt —-the mean value of household assets was $1.1 million while the mean level of household debt was only $168,600, or 15 per cent.

Taking averages or mean levels can, of course, be misleading because it conceals a lot of households that are over-borrowed. But there are a lot of Australians who are feeling very comfortable, thank you. The fact that they are usually older Australians is a problem.

But it’s one thing to have assets and another to have the money coming into the till to spend on necessities and the luxuries you think you deserve given the rise in your wealth.

When we look at the income graph we see a totally different picture:

According to the ABS, in 2007-08, or eight years ago, the average Australian’s mean weekly income was just under $1000 and it had been rising very well in the three years previously.

Then came the global financial crash and their income stopped rising. Looking back over those long eight years from 2007-08 what little gains were achieved were wiped out by a fall in 2015-16.

During those eight years the cost of services where people are paid at government rates (teachers, health workers, government employees and council workers etc) has continued to rise.

Still, as the average Australian, while my income has not risen my assets have gone up so I don’t feel too bad. That is unless I have a huge mortgage that was agreed to when the bank manager did a sum that assumed my income would rise with inflation.

But there is a sting in the wealth tale.

It’s true that the average Australian has assets of $1.1 million but more than 60 per cent of those assets are in property, if you include the fact that industry superannuation funds have a major stake in the unlisted property market.

And property values have often been driven by the decisions of state government and local councils to restrict supply.

So Australians have backed one sector of the investment area and it has delivered.

If ever property falls in Australia the affects will not just be directed to the over-borrowed parts of the society (and the bankers who loaned based on blatant lies by those applying for loans), but it will spread through the wealth of the community.

And not only are we looking at personal balance sheets.

A vast number of Australians are employed in the industry which is feeding this allocation of savings — the building industry.

We have to understand that as a nation we have made a huge play on one investment class.

Because this investment class is also our residences it has created deep social problems as well as the indebtedness that goes with booms that deliver 11 per cent a year.

We are watching Sydney apartment prices fall 10 per cent and the building rate fall.

In the overall scheme of the nation that is not a big deal.

But if it were to spread, watch out.


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