It’s a tale of two Australias: older Australians are getting much wealthier, and the young are being left behind.
It’s a story only too familiar to Australians under 45 who have struggled to save enough money to access the housing market in Australian cities.
They are a generation for whom the great Australian dream of home ownership has become largely elusive.
Data from the Australian Bureau of Statistics (ABS) shows that older Australians are capturing an increasing share of the nation’s wealth, and the house-price boom is a major cause of the growing divide between the generations.
As you can see in the following chart, households headed by 65-74-year-olds were on average $480,000 wealthier in 2015-16 than households in the same age group 12 years ago.
And that’s after taking inflation into account and despite the damage caused by the global financial crisis.
Households headed by 45-54-year-olds are $400,000 richer.
In contrast, households headed by 35-44-year-olds are on average only $120,000 wealthier — and for 25-34-year-olds the figure is just $40,000.
Property is a key factor for wealth disparity
Soaring property prices are a major factor behind the rapidly growing wealth of older Australians.
According to the ABS, house prices grew by 37 per cent on average across all the capital cities between 2003-04 and 2015-16 (and by more than 50 per cent in Melbourne alone). The boom was not limited to the capitals; prices also grew strongly in regional areas.
The next chart shows that for households headed by someone aged 75 or over, greater property wealth contributed about three-quarters of the increase in their total net wealth. For households headed by 65-74-year-olds and 55-64-year-olds, property contributed about half of the total increase in wealth.
But for younger Australians, again it is a different story. Bigger mortgages largely offset the increase in property wealth for households headed by 25-34-year-olds and 35-44-year-olds.
Baby Boomers have also used the superannuation system to build their wealth. They took advantage of the generous super tax breaks on offer for people nearing retirement, such as the ability to put large, concessionally taxed sums into their super funds just before retirement.
Average superannuation wealth over the same 12-year period increased by $230,000 in real terms for households headed by 65-74-year-olds, and by more than $150,000 for households headed by 55-64-year-olds.
Strong share market returns have further boosted superannuation balances and other financial wealth.