It may seem strange that Australia’s household wealth has skyrocketed during the same period that featured our first recession in three decades and a once-in-a-hundred-year pandemic. But that’s exactly what’s happened; and housing is a big part of why.
This rapid rise in wealth is good news and has certainly helped mitigate the overall economic hit from the pandemic.
But not everyone has benefited. Older households have seen their wealth surge, while many younger households have missed out.
Rising house prices have driven big increases in household wealth
Household wealth – the difference between the total value of assets owned by households and how much debt they owe – has jumped by $2.4 trillion or 22% since the pandemic began to reach a record $13.4 trillion, according to figures from the Australian Bureau of Statistics last week.
Much of this increase has been driven by rapidly rising house prices, which have lifted the total value of residential properties owned by Australians by $1.6 trillion.
While the amount households owe on their mortgages has also increased, this increase has been much smaller and nowhere near enough to offset the benefits from higher house prices.
The value of other assets has increased too.
For instance, households’ super balances also jumped nearly $600 billion since March 2020; but these increases pale in comparison with the increase in housing assets.
Older households have reaped the benefits of rising house prices
Not everyone benefits from rising house prices.
A third of Australians rent and so won’t have benefited from rising house prices – in fact, rising house prices mean this cohort now faces even greater barriers to enter the market.
Renters are typically younger than homeowners: two-thirds of households aged under 35 rent; just one-sixth of those aged over 55 do.
Splits of housing wealth by age aren’t available in the quarterly national accounts release, but we can use pre-pandemic data from the Survey of Income and Housing to estimate how the increase in housing prices has been shared among different age groups.
Much of the gain in net wealth that has occurred since the pandemic began has gone to older households.
Households past retirement age (i.e. 65 and older) have seen their housing assets surge by $450 billion. Meanwhile, because of their lower home ownership rate, younger households (those under 35) have seen a much smaller increase of $136 billion. Households aged 45-54 have seen the largest increase, in part because there are simply more of these households than any other age group (and they have relatively high homeownership rates).
Suburbs with older populations have seen faster house price growth
The graph above is a simplistic estimate, based on the limited available data we have. A key assumption we have to make is that all types of houses have seen the same rise in house prices. But we know this hasn’t been the case.
Suburbs outside of capital cities have seen faster house price growth, and larger homes have outperformed smaller ones.
These types of houses correlate with the age of homeowners. The graph below shows that the sorts of suburbs that have older populations have also seen faster house price growth. These outperforming, older-age suburbs tend to be in regional areas, but even within the capital cities, this pattern holds.
This diversity in price outcomes means that, if anything, older homeowners have seen even faster house price growth than younger ones. All else equal, this means the gap in wealth accumulation over the pandemic between younger and older households is probably larger than our earlier estimates.
Younger workers have also been hit by larger job losses
For many younger workers, the pandemic has been a double hit: not only have they missed out on the increase in housing wealth, they have also borne the brunt of job losses.
When the pandemic first hit, job losses were recorded across all age groups, but those under 35 were hit the hardest. The share of the under 35 population that were employed fell from 71.7% in March 2020 to 64.2% in May 2020.
Younger workers did benefit from strong labour market conditions during the recovery earlier this year. By mid-2021 a higher share of younger workers was employed than was the case pre-crisis. But with Sydney (and later Melbourne) returning to lockdown, job losses have again disproportionately fallen on these workers.
Where to from here
Australia’s economy has been surprisingly strong throughout COVID and has outperformed most other countries. Low interest rates and surging home values, which have improved the wealth of millions of Australians, have been a factor in keeping people spending and businesses hiring. And this strength has happened despite one of our major capitals spending more time in lockdown than any other city globally.
But the concentration of this rapid growth in wealth among older property owners is concerning. Generational gaps in homeownership and wealth are not a new trend. But COVID appears to have accelerated them. This all points to the importance of measures that boost housing accessibility for younger and first-home buyers. If accessibility worsens, the generational gap could continue to widen.