According to Roy Morgan’s October report on superannuation and wealth management in Australia, the wealth possessed by Australian households has grown by 42.1 per cent over the past four years to $8.1 trillion.
Of that $2.4 trillion increase, 57 per cent of that was the product of increasing equity possessed by owner-occupied homes.
In the 12 months to September 2013, equity in owner-occupied homes made up 48.1 per cent of Australian households’ net wealth while superannuation, pensions and annuities made up 28.6 per cent and 23.3 per cent was held in “other” forms, like managed funds, bank accounts and direct investments.
Fast-forward to the 12 months to September 2017 and 57 per cent of households’ net wealth is in the equity in owner-occupied homes. Correspondingly, the percentage held in super dropped to 27.4 per cent while wealth held in “other” forms fell by nearly 4 per cent to 19.5 per cent.
“There are clearly two groups in Australia when it comes to household wealth and its rate of increase. There are those who own or are paying off their home and those who are not,” said Roy Morgan Research industry communications director Norman Morris.
“The rapid rise in home values in Australia over the last few years has left those who are not owner-occupiers well behind in their share and level of household net wealth.”
The Roy Morgan data revealed that the 65.2 per cent of Australians who are living in owner-occupied homes hold 85.0 per cent of funds in superannuation and 89.7 per cent of all direct investments.
This cohort also holds 86.9 per cent of bank deposits. Combined with the equity in their homes, these figures mean Australian owner-occupiers hold 94.4 per cent of total household’s net worth.
The 34.8 per cent of the population holds the remaining 5.6 per cent.
Looking at these figures, Mr Morris said: “Although superannuation funds have increased considerably over recent times, they have grown at a slower rate than the increase in home prices, leaving them holding a lower share than four years ago and currently just over a quarter of household net wealth.
“This makes it very likely that for some years to come, retirement funding will need to come from household resources outside of superannuation,” he continued.
Arguing that the net wealth of a household determines their future financial wellbeing, Mr Norris noted that people who don’t own a home haven’t “made up for it” by investing in other areas.
Speaking to Nest Egg in October, independent economist Saul Eslake warned that the “unstated assumption” that most Australians will own their home outright by retirement poses a growing problem.
He said that over the last 25 years, home ownership rates among the 65+ cohort haven’t “changed very much”, but the home ownership rates in younger groups have fallen as first home buyers enter the market later, or not at all.
That means retirees will increasingly need to dip into their superannuation to pay off their home loans.
He explained: “What is looming as a significant problem is that a growing proportion of retirees that do own their own homes are going to get to retirement with some debt still outstanding on their mortgage and will then use their superannuation payments to pay off that outstanding debt.”
While this is a “rational thing to do”, Mr Eslake warned that it in turn means those super savings “won’t be available to supplement them in retirement”.
“So, more people will be getting the pension because they won't have their super savings that the government assumed and more people, who might have thought that by saving for superannuation they would have a higher standard of living on the pension, will find out that they don't.”