This week we came across an interesting little read from Fidelity International, an international fund manager. The article examined the composition of Australian household wealth as of the end of 2020, which is about as recent as the data gets when it comes to this kind of thing.
Household wealth is the total value of assets owned by households. This includes housing, superannuation, non-superannuation financial assets such as bank accounts and private share holdings and ‘consumer durables,’ which are manufactured goods such as cars or whitegoods which have a relatively long useful life span.
In Australia, as at the end of 2020, total wealth comes in at around $A14 trillion. Against this, total household debt was almost $2.5 trillion, leaving household net assets of around $11.5 trillion.
Housing constitutes around $7 trillion, or 50% of total household wealth. The next biggest asset type is superannuation, worth $2.8 trillion. Fidelity provide a neat graphic showing the composition of total household wealth over time, going back to 1990:
As you can see, residential property (household dwellings) has actually represented a relatively stable proportion of total household wealth over the last thirty years. (This is the blue section of the graph). That proportion hovers around 50%. The big change over time has been the growth of superannuation, which has risen from 11% of household wealth to 21% of household wealth over the period. (This is the orange section of the graph).
Remember, though, that this graph just looks at relativities. The actual value of the assets is not shown. This is why it would be misleading, for example, to conclude that consumer durables are worth less than they were 30 years ago. They are not – they simply have not risen in value to anything like the same extent that property and financial assets have. This is as you expect: consumer durables, however durable, tend to lose value over time as they wear out. What’s more, productivity gains make manufactured goods cheaper over time. Property and financial assets don’t depreciate. Property, in particular, ages well.
The enduring value of property was highlighted in another very helpful graphic from Fidelity, showing the rise in actual asset values over time:
That blue line is housing! While housing continues to comprise a relatively constant 50% or so of total household wealth, the actual dollar value has increased by around 600% since 1990. Superannuation, as a percentage of itself, has risen by even more. The rise of superannuation is a function of two things: one is that new money is constantly ‘pouring in’ to that sector by way of member contributions, and the second is that the value of those contributions is then multiplied by an increase in the value of investments made by super funds.
These graphs tell a simple story: for most Australians, their home and their super fund are the main avenues to wealth. And if we invest in ‘representative’ housing and ‘representative’ super assets that can be expected to keep pace with housing and super values in general, history suggests we will do quite well.