Superannuation is set become the average Australian’s greatest asset in just over a decade, overtaking the family home for the first time.
Over the past decade or so average super balances have grown by 56 per cent and home wealth by 27 per cent, according to the Household, Income and Labour Dynamics in Australia (HILDA) survey.
HILDA deputy director (research) Roger Wilkins said the trend was likely to continue and he expected super to overtake the family home by 2029, possibly earlier.
The Australian love affair with tax-advantaged housing wealth has been a long one. But home ownership rates are waning at the same time as the superannuation system matures. More and more retirees have a lifetime of compulsory super contributions behind them.
“I would expect house price growth to be lower than has been sustained since 2002 and therefore think superannuation will overtake the family home sooner than 2029,” Professor Wilkins said.
He predicts average super balances will outstrip the value of the family home even with the government’s proposed contribution caps – a limit of $25,000 in pre-tax dollars a year and $500,000 in post-tax money over a lifetime.
HILDA figures also show that super balances are peaking later and later.For men, balances top out in the 65 to 69 age group, whereas a decade ago it was at 55 to 59 years.
Professor Wilkins said there had been surprising little growth in the super balances of younger age cohorts, which might be because of subdued sharemarket returns and lower work participation rates since the global financial crisis.”When you look at how big the growth is for the older age groups I think a lot of that is driven by people piling all their assets into this tax-sheltered option as they reach retirement age,” he said.
HILDA shows the average balance for men in the 60 to 64 years age cohort was $138,649 higher in 2014 than in 2002.
Women in the same age range had $123,828 more.
But there was essentially no growth in mean superannuation balances among men and women aged under 35.
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The Australian dream: soon, fewer than 50 per cent will own home
The Australian dream of home ownership will reach a tipping point, possibly as soon as next year, when fewer than half of all adults are expected to own property, a scenario with “undesirable social consequences” according to the University of Melbourne.
The university’s Melbourne Institute has been collecting data on almost 20,000 Australians since 2001, checking in every year and building one of the most complete pictures of the lives, loves and finances of the nation.
The proportion of adults who own their home has fallen from 57 per cent in 2002 to 51.7 per cent in 2014 but Roger Wilkins, the deputy director of the Household, Income and Labour Dynamics Australia survey, says that based on trends the ratio will likely fall below 50 per cent as early as next year.
“I think this is a real cause for concern,” Professor Wilkins told The Australian.
“I don’t think there has been a real decline in people’s aspiration to own their own home other than the fact people have just given up on it because it seems unattainable.
“This decline is driven by affordability, not changes in preferences to home ownership. For a society like Australia this has undesirable social consequences.
“Given the insecurity of tenure associated with renting in Australia, home ownership is strongly associated with being invested in your local community, feeling a part of your community and contributing to it. It is important to the social fabric.”
Victoria has experienced the sharpest decline in the proportion of households classified as homeowners, falling from above 72 per cent around 2007 to 66 per cent in the most recent survey.
The NSW ownership rate has fallen during that period from almost 67 per cent to 63 per cent, though there have been small ownership upticks in Western Australia, Queensland and South Australia.
The family home accounted for 43 per cent of household assets in 2014 but the share of households that owned investment properties grew from 17 per cent to 21 per cent between 2002 and 2014.
Meanwhile, superannuation is on track to overtake the home as the most important family financial asset in decades ahead, hitting a mean value of $186,000 in 2014, from $112,000 in 2002.
But for the moment home ownership is still the primary means by which Australians generate wealth and that has flow-on effects to other aspects of life, such as family planning.
The survey finds that women are the primary decision-makers when it comes to starting families, basing their judgments on their own financial situation and satisfaction with partners.
Every $1000 more a woman’s partner earns, increases the probability of pregnancy by 1.5 per cent.
To some extent, Professor Wilkins says, people are captives of their circumstances, though there are those who break out of their constraints to move up or down in life.
The constraints and opportunities are myriad.
Median weekly childcare costs for couples have risen from $53 in 2002 to $111 in 2014, a jump of 109 per cent.
Average weekly earnings for men, on the other hand, have risen 24 per cent and for women 18 per cent during the same period.
Small businesses have contracted in terms of the share of the workforce they employee. More than one-quarter of Australians worked in small businesses in 2002; in 2014 it was scarcely more than one-in-five.
“It’s still a little bit of a mystery to me as to why we saw that decline,” said Professor Wilkins.
“One argument is that things were so good all the small businesses became large ones, but then why don’t we see more start-ups?”
The HILDA data shows average annual household disposable income grew by almost $30,000 in 14 years but the pay gap between high and low earners was gradually widening.
Professor Wilkins attributes that to a broadening gulf between high and low-skilled workers.
Original article here