I guess you’ve heard. Isn’t it great? Australians are now the richest people in the world. But if you find that hard to believe, congratulations. Your bulldust detector’s working fine.
According to Credit Suisse’s annual global wealth report, which tracks wealth in 20 countries, last year the typical adult Australian’s wealth – assets minus debts – reached almost $336,000.
Soaring property prices lifted our median wealth by $38,000, enough to put us just ahead of Belgium and New Zealand. Our residential property prices rose by almost 24 per cent during the year.
We had about 2.2 million millionaires – measured in US dollars – up from 1.8 million in 2020.
So, what’s the catch? Well, I’m sure there’s nothing wrong with the bank’s calculations. And there’s no denying we’re a rich country, whether by this you mean our annual income, or the value of the net assets, physical and financial, of our households.
No, the problem is that so much of our wealth comes from the value of our home. Do you believe our homes are so much bigger or better, or better located, than homes in North America or Europe?
I doubt it. If not, then what we’re really saying is that the land on which our homes are built is much better than the land on which the Americans and Germans – and Kiwis – have built their homes.
Really? We have better views? Better soil quality? Less chance of getting flooded or burnt out?
No. If the market price of our residential land is higher than their market price, it’s just because we’ve bid our prices up higher than they have theirs.
And how exactly does doing that make Australians richer than people in other countries? If it does, why don’t we keep bidding our prices up until we’re twice as rich as we are now?
See what I’m saying? It’s not something economists talk about much but, as former Reserve Bank heavy Dr Tony Richards explained in a speech many moons ago, the notion that the high prices we charge and pay each other for our homes makes the nation richer is an illusion.
“The increase in housing prices has been a mixed blessing for Australians. At one level, rising housing prices have made many people feel [note that word] wealthier and have contributed to higher levels of consumer spending than might otherwise have occurred. But they have also resulted in concerns about housing affordability,” he said.
“The difference in views reflects the fact that housing is not just an asset but also a consumption item. When housing is thought of purely as a consumption item, it would seem that in aggregate we would be better off if its price were lower.
“Because we all need to consume some level of housing services, either rented or purchased, a higher level of housing prices and rents allows less spending on other items.”
Get it? It seems that, as a nation, Australians value owning their own home, and making sure it’s a good one, more than the people in many other rich countries do.
In consequence, we devote more of our incomes to housing than they do, meaning we spend a smaller proportion of our incomes on everything else. So, to that extent, home ownership really is the Great Australian Dream.
It’s because, as a nation, we can never spend enough on improving our own housing position – although how much we can pay is held back by how much our income allows us to borrow – that house prices have become so sensitive to the rate of interest on home loans.
When rates come down a bit – even during a pandemic – our ability to borrow more prompts more aggressive bidding against other would-be owners, pushing prices up. When, as now, interest rates start going up again, thus reducing how much we can borrow, house prices fall back a bit.
Although there’ve been times when we’ve let our building of extra homes fall behind the growth in our population, over the longer term we’ve managed to keep the two pretty much in line.
So, house prices aren’t high because we don’t have enough houses to accommodate every household. They’re high because some houses are better than others – bigger, newer, flashier, or better located, nearer the beach, nearer other well-off people, or nearer the centre of the city – and we compete with others to get the best we can (barely) afford. And because many home owners want to own more than one, as an investment.
As well, prices in the most desirable parts of the city are higher because of government restrictions on packing in more households by building up rather than out.
But here’s the punchline. Just because higher house prices don’t make us wealthier as a nation, this doesn’t stop them making some Aussies wealthier than other Aussies. Which, for many of us, is what we’re after. Housing is one of the main things we’ve allowed to widen the gap between rich and poor.
And I thought we were supposed to be proud of our Aussie egalitarianism.
