I wrote a comment piece about housing policy for Guardian Australia that ran on Boxing Day last year. The piece elicited quite a few strong reactions from people who agreed or disagreed with the piece, including from Godfrey Moase. Godfrey is Assistant Secretary of the National Union of Workers General Branch, and has been active in the Save Williamstown campaign. He took issue with my piece, expressing disappointment that I view neighbourhoods in “mercantile terms,” so I thought it might be interesting to tease out our disagreement a little in this exchange.
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Imagine that there’s one source of carbohydrates – potatoes – and that everyone needs to eat carbs at least once a day. In this hypothetical scenario, there are three types of potato: kipfler, desiree, and regular. Kipflers are expensive and not that common, whereas regular potatoes are cheap and plentiful. Desirees are somewhere in the middle.
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Today I received a letter from my local MP, Adam Bandt, arguing for tighter restrictions on the supply of housing in inner-Melbourne:
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The other day I had a guest post from my friend Simon Mongey, featuring some interesting charts he made using ABS Confidentialised Unit Record File (CURF) data . He’s sent me another couple of interesting charts on housing, comparing 1986 data (dashed line) from the Income Distribution Survey with 2006 data (solid line) from the Housing Income and Expenditure Survey.
This first is this chart of homeownership rates by age cohort. You can see that homeownership rates have fallen for most age groups.
Mean Homeownership Rates: 1986 [dashed], 2006 [solid]
The second chart shows the home value to income ratio for homeowner households, in the upper half of the chart, and the owner income-renter income ratio, both by age.
Mean Housing Ratios: 1986 [dashed], 2006 [solid]
The trend in both cases is stark. Households’ housing wealth is now significantly greater, relative to income, than it was 20 years prior. It’s a fairly obvious observation, but it’s rare to see this ratio broken down by age.
In Simon’s words, the lower half of the graph shows “a quite staggering change. Home ownership in 2006 more clearly separates the rich and the poor in terms of income”.
Today I’ve got a guest post from my friend Simon Mongey about the composition of households’ wealth. Simon is currently completing his Honours in Economics at the University of Melbourne. He wanted to share some CURF nerdery. He’s managed to put together a couple of interesting charts about Australian households’ assets. Simon writes:
This is why I get a bit excited about the ABS Confidentialised Unit Record Files (CURF); incredibly large sets of microdata on representative sample of the Australian population. Also why I get a bit excited about the economics of housing markets. I’m currently completing an honours thesis that allows me to tend to both of these fancies. ‘Completing’ in the sense that these two figures emerged somewhere out of a miasma of RedBull and cup-a-soup around 4am this morning. Anyway, I thought they may be of some general interest. Both are derived from the 2005-06 CURF: Household Income and Expenditure Survey.
So in the graph below we’re staring across the wealth distribution of Australian households, grouping households within each two percent range of the distribution and mapping out the average composition of household assets for these groups. Studies of wealth (rather than just income) are hard to come by since rich data of household balance sheets such as found in the CURF sets are a fairly recent occurrence. This has annoyed me over much of my time at university, everyone talks about income but no one seems to focus on wealth!
Percentage of Total Household Assets by Wealth
Anyway, here we’ve got a sample of 9,961 households so each data point is taken from the average of 199 household balancesheets (wow!). There’s a lot going on here so I’ll just pick a couple of points. First, for households between the 24th and 88th percentiles of the wealth distribution Residential Property (here taken to mean the value of the place of residence) is by far the prominent asset. Second, for households on the low end of the distribution superannuation is a very important asset and on retirement will provide the primary source of income for these households. Third, we see clear evidence of our love for investor property, outstripping investment in equities, bonds and trusts for most of the distribution. In fact, for those positioned between the 50th and 90th percentiles of wealth a clear ordering of the balance sheet emerges; residential property > superannuation > shares, bonds, trusts (also including bank balances) > own businesses.
Percentage of Total Household Assets by Age
Here we look at the same decomposition of household assets but taking averages over the age of the household (proxied by the age of the ‘household head’). This one is a bit more standard so we won’t go on about it. Though its still worth noting that the preference towards investment property over more conventional investments is reinforced, and that upon retirement superannuation is the most quickly eroded form of savings, residential property and stocks, shares and bonds being liquidated more slowly.
Whenever interest rates go up, some journalists seem to forget that most Australians don’t have a mortgage. So, here’s a pre-emptive note: most of us either own our homes outright, or we rent. Here’s some Census data:
|Household tenure type
||Number of dwellings
||Proportion of all households
||Number of people
||Proportion of all people
|Owner without a mortgage
|Owner with a mortgage
35.1% of households are owned by mortgagors. 42% of people live in mortgaged houses. That’s a lot of people, the biggest of any household tenure type, but it tends to be forgotten that nearly six million of us live in rented properties.
Whenever the cash rate creeps up by 25 basis points it’s front page news, portrayed in our more sensationalist media outlets as an economic disaster of near-apocalyptic proportions for our perpetually stretched mortgage belt. I seldom see similar hand-wringing when the vacancy rate plummets and rents soar.
Monetary policy is obviously important to the macroeconomy in many ways other than its direct effect on people with mortgages, and the effect on those people can be quite large. I’m not trying to suggest that it isn’t a story worth writing about, I’m just trying to put the mortgage belt in perspective.