The Credit Suisse Global Wealth Databook 2013 contains some interesting reading about the wealth of Australia and Australian households.
Of all countries detailed in the report, Australia’s households have the highest median wealth of all countries; have the second highest average level of wealth of all countries, and enjoy the second least unequal distribution of wealth (wealth being a combination of asset values and income).
The composition of wealth in Australia has a particularly strong focus on real estate. It represents 59 per cent of all household asset value – the second highest in the world. The author credits property as being the great wealth equaliser in Australia.
Given the relatively high percentage of retirees in Australia who own their own homes, the most important sources of wealth inequality in Australia are employment levels and wage rates.
Clearly, past and present governments have done a good job in balancing their efforts to maximise employment and to encourage higher wages. Australia has the highest minimum wage in the world, and is ranked fourth highest using OECD purchasing power parity average wage statistics.
Young employed persons in Australia are in an enviable position.
They work in a country where the medium- to long-term growth in property values are indisputably consistent over the past 100 years. They enjoy some of the best wage and employment conditions in the world.
Because property is the asset in which the majority of Australia’s household wealth is created, encouraging a movement towards property ownership when people are younger and earning more (and thus property is the most affordable) would give Australians greater wealth in their later years.
Federal and state governments clearly encourage property ownership already through various programs, including the National Rental Affordability Scheme, first home owner grants, favourable tax policies and first home saver accounts.
The variables of supply and demand drive the market in all commodities, and property is no different. One thing that most people, including housing price forecasters, fail to understand is that the reason that prices remain so stable is because federal and state governments, both directly and indirectly, hold a controlling influence of both the supply and demand variables. That’s because our government system is designed in such a way that underpins this stability.
The first supply factor is labour and materials costs, which are set by the market. The second is access to finance for developers, builders and buyers. By far the biggest supply constraints are physical barriers (such as water, cliffs, freeways and so on). The adage ‘they are not making any more land’ is now irrelevant. Development guidelines enable the creation of more lots (albeit smaller), and higher densities create more living accommodation (albeit airspace). These planning restrictions are set and controlled through the local councils (through zoning ordinances), and state and federal governments.
Governments are the largest holder of residential land in Australia. In Victoria, Places Victoria (formerly VicUrban), has a 12 per cent market share in land sales. The second biggest landowner in Victoria is VicTrack – another Victorian state government enterprise. Other states are similar. The ACT and Northern Territory are virtually all government-owned.
So ‘government’ is the largest single entity that has the capacity to influence the supply of either land or building space, and by extension is the largest single entity that influences property pricing.
Demand on the other hand is driven by buyer numbers. Aside from Australia’s natural growth rate, state and federal governments further influence buyer numbers through their migration policies, foreign investment rulings, tax rulings, and superannuation borrowing rules.
Underpinned by a government structure that is invested in its success, the argument to encourage investment into property is a solid one. A greater level of wealth for households is not only good for the Australia, but good for Australians. Wealth created through self-responsibility by the individual is far more empowering than adopting an attitude of entitlement that seems to be creeping into our modern society, and one that is imposing an increasing burden on taxpayers and governments alike. A decreased need for a government to spend on support programs, and more spending on quality of life services means a better quality of life and more household wealth. Who doesn’t want that?