Australians are among the wealthiest people on the planet yet life has never felt harder for many. How can this be? asks Harry Chemay.
A new research paper has highlighted the plight of middle Australia, which has, over the past two decades, experienced a fall in economic circumstances relative to both low and high-wealth households.
This squeezing of middle Australia coincides with and exacerbates, the cost-of-living crisis of the past few years, mostly borne with outward stoicism and an irreverent sense of humour.
Not without good reason has ‘cozzie livs’ entered the Australian lexicon, as rising living costs post-COVID have impacted all aspects of life Down Under, from renting to health care to the ability to put enough food on the table for some.
Increasing household financial stress is further evidenced in recent data from the Australian Bureau of Statistics (ABS), which indicates nearly 1 million workers (almost 7% of employed people) now have more than one job.
It might be tempting to presume that it is lower-skilled workers who are being forced into a ‘side hustle’ out of economic necessity, but the data reveals instead that professionals dominate by number, with more than 300,000 currently holding multiple jobs, a rate of over 8%, as the below chart shows.
Source: Australian Bureau of Statistics, Multiple Job Holders, Sept 2024
Life has never felt harder for middle Australia, yet we are, on average, amongst the richest people on the planet. How can these two opposing statements co-exist and both be true?
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Australia’s changing wealth inequality
The Melbourne Institute’s Applied Economic & Social Research Centre paper delved into wealth inequality in Australia for the period 2002 to 2018. By using this pre-COVID period, it reveals longer-term factors predating, and thus not influenced by, the pandemic that shaped changes in wealth inequality since the early 2000s.
Using a survey run by the Melbourne Institute, one that has tracked the changing economic and social circumstances of the same participants since 2001, the researchers looked at household wealth in 2002 and then every four years thereafter until 2018.
All components of household wealth were considered, including financial assets such as superannuation, bank accounts, shares and other investments. Non-financial assets incorporated the primary residence (if a homeowner), together with any investment and holiday properties, business assets, collectibles and vehicles. Liabilities such as mortgages, credit card debt, business debt and educational loans (HELP and VET) were captured but deducted from assets to focus on net wealth outcomes.
The outputs were then divided into different wealth groups to primarily capture high-wealth households (those in the top 90%), middle-wealth households (at the middle 50%) and low-wealth households (in the bottom 10%).
The study’s results indicate that low-wealth households saw their net wealth increase from $15,313 in 2002 to $28,000 in 2018 on average, an increase of 82.9%.
Middle-wealth households saw a lift from $340,623 to $520,300 over the same period, a lift of 52.7%, while high-wealth households experienced an increase in net wealth from $1,349,548 to $2,224,400, growing 64.8% in that time.
Importantly, the researchers noted that the absolute gap between different groups diverged over the 16-year period. While the gap between high and low-wealth households increased by 64.62%, and the gap between middle and low-wealth households grew by 51.36%,
the largest rise was between high and middle-wealth households at 68.90%.
The report noted, in appropriately neutral academic speak, that there “is some evidence here of a ‘disappearing middle’ as the relative wealth position of those in the middle of the wealth distribution worsens”.
Housing the driver
To understand the factors driving this ‘disappearing middle’, the researchers then analysed net financial wealth and net property wealth separately.
In financial wealth terms, low-wealth households increased their circumstances on average from $2,775 to $9,200 over the 16 years, a change of 231.6%. The researchers noted superannuation as a possible reason for this significant uplift. Middle-wealth households increased their financial net wealth from $75,989 to $152,900, a 101.2% uplift. High-wealth households saw an increase in net financial wealth from $609,403 to $934,766 on average, an uplift of 53.4%, with the Global Financial Crisis of 2007-08 disproportionately impacting this group.
Turning to property wealth however, the results essentially invert. The low-wealth households, on average, had zero property net wealth at every survey point across the 16 years, evidencing the difficulty in becoming property owners for lower-income households.
Middle-wealth households saw a lift in net property wealth from $221,279 to $290,000, a rise of 31.06%. High-wealth households, in contrast, saw net property wealth rise from $737,598 to $1,250,000 on average, a lift of 69.47%.
The chart below depicts the net wealth positions of each household type across financial, property and total net wealth across the study period.
Source: author’s analysis based on data in the HILDA working paper (2024)
In 2002, property wealth for high-wealth households was 3.1 times that of middle-wealth households. By 2018, it had increased to 3.4 times, and the absolute dollar gap in net property wealth separating these two groups had increased from $332,000 to $1.1 million.
This ‘disappearing middle’ phenomenon appears to be exacerbated by ever-escalating residential property prices and the increasing debt burden carried by middle-income Australians to enter, and stay in, the property market.
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The increasing wealth gap
The Melbourne Institute paper is but the most recent in a long line of research that all points to the same underlying cause: high and rising residential property prices, relative to incomes, that over time,
concentrates property wealth in the hands of fewer, generally older, households.
With $11 trillion in residential property compared to $4 trillion in superannuation, it is property that has an outsized influence on Australian household wealth and who holds it.
This distribution of wealth is linked to declining property ownership, particularly in younger households, with the researchers noting that for the adult population, the share of those owning no property at all (the ‘property poor’) increased from 29% to 32%.
Growing property wealth inequality is detectable at the other end of the age spectrum, too. While those 65 and over with no property increased from 32% to 34% during the study period, those with two or more properties increased from 13% to 15%.
As lead author of the paper, Dr Melek Cigdem-Bayram noted:
“Australia’s worsening housing affordability crisis is locking people out of homeownership – a traditional path to economic stability for middle-income earners. As wealth inequality is increasingly concentrated in fewer hands, it entrenches economic instability and exacerbates poverty.”
The acceleration of that trend since the early 2000s has served to inflame the Housing Hunger Games that is Australia today.
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Harry Chemay has more than two decades of experience across both wealth management and institutional asset consulting. An active participant within the wealth and superannuation space, Harry is a regular contributor to investment websites in Australia and overseas, writing on investing and financial planning.