The Lucky Country: how inheritance and the property boom sharpened inequality – report

by | Mar 8, 2017 | Economy & Markets, Finance & Tax

Inequality is on the rise, perpetuated by government policies such as negative gearing, where ordinary taxpayers subsidise property investors, and the decade-long failure to introduce money-laundering legislation. This report from Brett Cole looks at the latest research on inheritance.

Story by Brett Cole

How important are Mum and Dad to the future financial prospects of Australians?

Very, very important, according to a new study by the Australian Housing and Urban Research Institute. Australians aged between 25 and 44 years who have received wealth from their parents are, unsurprisingly, in a better financial position than those who have not received an inheritance.

They are more likely to own their own homes, have higher bank accounts, received university degrees and be self-employed. “If you’ve got a buffer to fall back on, you’re more likely to take risks,” said RMIT professor Gavin Wood.

Between 2002 and 2012 about 1.8 million Australians inherited money at least once. The average amount of inheritance was $79,000. Cash transfers lifted home ownership rates among 25 and 44 year olds by 15 percentage points to 60 per cent, according to the Australian Housing and Urban Research Institute.

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Wealth in Australia is in a self-perpetuating cycle. Children from affluent socio-economic backgrounds are more likely to receive wealth and therefore retain it, especially if they live in the leafy suburbs Mosman or Vaucluse in Sydney, or Melbourne’s Toorak or Brighton; neighbourhoods which have benefitted the most from soaring property values.

“If by happenstance, you have been living in the inner cities of Sydney and Melbourne than your life opportunities have been helped by house price gains or flexible mortgage products,” said RMIT’s Wood.

The median house price of an inner city Melbourne area in 1971 was $170,500. By 2014 it was $1.17 million, according to the Centre of Applied Economic Research at the University of New South Wales.

In Sydney’s inner city, high-density suburbs, the median house price in 1991 was $728,000. In 2015 it was $2.69 million. Real estate prices in many suburbs have risen 20 per cent since.

“Flexible mortgage products have helped people use their houses as ATMs in ways not possible 30 or 40 years ago,” Wood said. Intergenerational wealth transfers have helped exacerbate inequality in Australia. A person in the top 20 percent wealth group has 70 times as much wealth as a person in the bottom 20 percent, according to a 2015 study by the Australian Council of Social Services.

A country which once prided itself on its egalitarian traditions now has a level of income inequality above the average of the 35-member Organisation for Economic Cooperation and Development. That’s why having the right mum and dad is so important in today’s Australia.

Brett Cole is a former Bloomberg journalist. Contact Brett at @BrettCole4 or [email protected]

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Michael West established to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences.

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