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Household Wealth Leanne Johnson Regional Research Leader BITRE Outline • • • • • • • • Background and objectives Methodology National overview Small area estimates of wealth for 2003-04 Recent changes Wealth and income Wealth and consumption Outputs Background • Net worth = value of household assets minus liabilities – Assets: housing, vehicles, bank accounts, superannuation, shares, businesses, dwelling contents etc – Liabilities: property loans, HECS debt, credit card debt etc • Why is household wealth of interest? – Wealth contributes to economic wellbeing by • Generating income • Supporting consumption • Providing economic security Objectives • Develop & analyse new measures of household wealth for Australia’s regions • Improve understanding of household wealth & its relevance to regional wellbeing • Explore relationship between regional wealth & regional income Methodology • Small area estimation • ABS Survey of Income and Housing 2003-04 – Provides capital city/state balance benchmarks • Small area data sources: – – – – Valuer General’s data on property sales ATO Taxation Statistics Census data Other ABS data • Estimates produced for 1135 Statistical Local Areas – Exclusions: very remote, indigenous & less than 500 households National overview Composition of household wealth, 2003-04 (ABS SIH) Asset Owner occupied dwellings Other property Total property assets Mean Liability $249 000 Loans on owner occ.dwellings $70 800 Loans on other property Mean $40 000 $19 900 $319 800 Total property loans $59 900 Superannuation $63 500 All other liabilities $9 500 Dwelling contents $47 400 Total liabilities Net business assets $38 400 Bank accounts $21 100 Shares $18 200 Vehicles $17 200 Other assets $10 700 Total assets $537 100 Net worth $69 400 $467 600 Composition of household wealth, 2003-04 (ABS SIH) Asset Owner occupied dwellings Other property Total property assets Mean Liability $249 000 Loans on owner occ.dwellings $70 800 Loans on other property Mean $40 000 $19 900 $319 800 Total property loans $59 900 Superannuation $63 500 All other liabilities $9 500 Dwelling contents $47 400 Total liabilities Net business assets $38 400 Bank accounts $21 100 Shares $18 200 Vehicles $17 200 Other assets $10 700 Total assets $537 100 Net worth $69 400 $467 600 Composition of household wealth, 2003-04 (ABS SIH) Asset Owner occupied dwellings Other property Total property assets Mean Liability $249 000 Loans on owner occ.dwellings $70 800 Loans on other property Mean $40 000 $19 900 $319 800 Total property loans $59 900 Superannuation $63 500 All other liabilities $9 500 Dwelling contents $47 400 Total liabilities Net business assets $38 400 Bank accounts $21 100 Shares $18 200 Vehicles $17 200 Other assets $10 700 Total assets $537 100 Net worth $69 400 $467 600 Key messages from wealth literature • Wealth is very dependent on age – Peaks for 55-64 age groups • Wealth is unequally distributed compared to income – Wealthiest 10% own more than 40% of wealth – But wealth inequality is not increasing Average wealth, capital cities & state balances, 2003-04 Capital cities Rest of State 600 500 400 300 200 100 States and Territories Total ACT NT TAS WA SA QLD VIC 0 NSW Average household wealth ($'000) 700 BITRE’s small area estimates of wealth BITRE’s small area estimates of wealth, 2003-04 Highest wealth $’000 Lowest wealth $’000 Peppermint Grove WA Hunter’s Hill NSW Woollahra NSW Mosman NSW Ku-ring-gai NSW Bayside: Brighton VIC Pittwater NSW Manly NSW Nedlands WA Willoughby NSW 1926.8 1530.1 1388.4 1386.5 1370.1 1187.2 1178.0 1024.6 1021.8 1000.6 Mount Morgan QLD Playford West Central SA Elizabeth SA Woodridge QLD Kingston QLD Wacol QLD Inala QLD Marsden QLD Palmerston Balance NT Moulden NT 154.3 157.2 157.7 160.1 175.6 179.7 193.6 196.2 198.3 201.1 Average household wealth, Australia, 2003-04 Average household wealth, Sydney, 2003-04 Average household wealth, Melbourne, 2003-04 Average household wealth, Central QLD, 2003-04 Household indebtedness Debt to asset ratio Debt to asset ratio for owner occupied property Median age, 2001 SLA Name State/ Territory Palmerston Balance NT 41.3% 81.8% 28 Bakewell NT 36.3% 61.9% 26 Durack NT 32.0% 59.6% 28 Woodroffe NT 30.8% 57.6% 28 Melton East VIC 30.4% 39.9% 28 Moulden NT 28.5% 54.2% 25 Gray NT 27.7% 48.2% 28 Kelso QLD 26.6% 48.9% 28 Thuringowa Part A Balance QLD 25.6% 46.5% 29 Alice Springs – Larapinta NT 24.6% 42.6% 30 Debt to asset ratio, Sydney, 2003-04 Debt to asset ratio, Townsville, 2003-04 Changes in wealth, 2003-04 to 2005-06 • Liabilities grew more rapidly than assets • Net business assets grew vary rapidly in cities • Regional areas experienced greater growth than capital cities in all states but WA • Sydney experienced the lowest growth in wealth • Property values: – Declined in Sydney’s south and west – Grew very strongly in QLD mining towns & around Bunbury Wealth and income Relationship between wealth and income 100 80 60 40 20 Correlation = 0.64 Net worth per household ($'000) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 0 • Excluding top wealth decile reduces correlation to 0.26 Average income per taxpayer ($'000) • Compared to 2003-04 RIPT 120 How often do the regional wealth & income estimates differ markedly? Gap between the wealth and income rankings – – – – exceeds 500 places for 19% of SLAs exceeds 250 places for 45% of SLAs 20 SLAs are in highest wealth quintile & lowest income quintile 16 SLAs are in lowest wealth quintile & highest income quintile In what circumstances do regional wealth & income data provide contrasting messages? • Wealth outperforms income: – Agriculturally-based SLAs – Sea-change communities • Income outperforms wealth: – – – – Mining communities Apartment dwelling SLAs Mortgage-belt SLAs Most SLAs in Darwin, Townsville & Cairns • When region has a particularly old or young age structure Other findings on wealth-income relationship • Regional differences in age structure explain 47% of gap between regional wealth & income rankings • Wealth displays more spatial variation than income – Regional wealth: CV=34% – Regional income: CV=19% – Reliance on regional income data may understate the extent of regional disparities Wealth and consumption Wealth supports consumption • Through running down cash reserves, selling assets or using assets as collateral to borrow funds • House price growth supported particularly strong consumption growth between 2003 and 2005 • Increased housing equity withdrawal financed consumption • Marginal propensity to consume out of wealth: 0.02 to 0.06 Low income & low wealth Australia ACT NT TAS Bal Hobart WA Bal Perth SA Bal Adelaide QLD Bal Brisbane VIC Bal Melbourne NSW Bal Sydney Mean equivalised weekly consumption ($) Wealth boosts consumption for low income households 600 500 400 300 200 100 0 Low income & medium or high wealth Outputs • Measuring the economic wellbeing of Australia’s regions conference paper – late August • Focus on Regions 5: Household Wealth information paper • Household Wealth Database <www.bitre.gov.au>