Forget the recession, forget the lockdowns, the pandemic, the zoom meetings and the kids doing school from home: 2020 was a great year! In 2020, Australian households got richer.
If you owned property, that is.
In 2020, despite employment crashing, Australian households ended the year with a total extra net worth of $790bn – a 7% increase on the level we all held at the end of 2019.
That doesn’t mean 2020 was all smooth sailing – the first quarter was a horror show: household net worth fell by $255bn in just three months.
But not to worry, so big was the rebound that in the last three month of the year household wealth increased $501bn, or around 95% of the amount of Australia’s total GDP for that quarter.
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The big reason was house prices, or more specifically – land.
In the last half of 2020, residential dwelling and land asset values rose 6.5%, but most of that was land prices, which rose over 8%, compared with dwelling values that increased just 1%.
As much as you might love your house, the part of your residence that most increases in value over time is the land upon which it rests.
The other big rise in the second half of the year was superannuation. While the plunging share price in the first part of the year saw Australian superannuation balances fall by a total of $274bn, over the following nine months it rebounded by $368bn.
But of course those gains are not evenly distributed – the bulk of superannuation is held by those near their retirement age, and those with high incomes who also benefit the most from tax concessions.
Which, not uncoincidentally, is the same for housing.
Last year was not great for those wanting to get into the housing market – unless you were able to take advantage of the government’s homebuilder grant to build a new house.
For the rest, house prices soared further out of reach as record low mortgage rates helped residential prices around the nation rise nearly 4% in the last half of 2020.
And thus wealth increased by 7% while the compensation of employees in 2020 rose just 2.5%.
It continues the story of growing wealth inequality in Australia.
For those feeling aggrieved about our situation, we can at least take solace that across the Tasman house prices are even worse. But at least the government there is looking to act.
Last year, house prices across New Zealand rose by 22%, and have gone up nearly 9% in just the past three months.
The median house price in Auckland is now NZ$1.1m (A$1m) – essentially the same as Sydney.
The Ardern government is tackling the issue through a range of methods including ending its version of negative gearing in which investors were able to deduct the interest they paid on investment properties.
They have also in effect increased capital gains tax on property speculation by making capital gains tax payable on profits from any sales made on properties that have been held for less than 10 years (up from the previous five years).
It’s all being done because like Australia, New Zealand currently has record low interest rates designed to get the economy going; but they are setting fire to the housing market, even while wages remain stagnant.
The problem in both countries is that housing makes up such a large amount of total wealth that doing anything to affect house prices means going up against very wealthy interest groups.
So far about all the Morrison government is talking about doing is backbencher Tim Wilson’s idea of allowing people to access superannuation for home deposits. The main result of that policy would be to help increase house prices and thus boost even more the wealth of the richest.
The Ardern government, with its massive majority, is taking on speculators and investors. But alas, there seems little chance of either the Morrison government or the ALP proposing anything like such policies here.
And so wealth will increase, but more so for a few than for most.