Damning evidence of wealth disparity highlights inequality across generations

Extract from The Guardian

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Business (Australia)

Grogonomics

Greg Jericho

With earnings for median income households stalling and people under 40 less able to afford a home than ever inequality remains a major political issue

• Greg Jericho is a Guardian Australia columnist

 “The report finds that home ownership among those aged under 40 has plummeted since 2002, with the current housing boom in Sydney having a massive impact.” Photograph: Dan Peled/AAP

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Wednesday 2 August 2017 04.00 AEST Last modified on Wednesday 2 August 2017 04.02 AEST

The latest report of the Household, Income and Labour Dynamics in Australia (Hilda) survey, released today by the Melbourne Institute of Applied Economic and Social Research, shows that the real income of households is now lower than it was in 2009. And while the measure of income inequality appears stable, the report finds that housing ownership has drastically declined for people under the age of 40 as the economic disparity between those who own homes and those who don’t continues to widen.
Given the political focus from Bill Shorten on inequality, the release of the annual Hilda survey, which has been tracking the social and economic situation of Australian households since 2001, was always going to be used as ammunition by either side.
The good news from the Hilda report is that income inequality does not seem to be getting worse.

The report’s calculation of the annual Gini coefficient, which records income inequality, fell slightly in 2015 and is essentially around where it has been since 2001.
But the Hilda survey also measures income inequality over five year periods – to get more of a sense of ongoing inequality. On this score, inequality has been rising slightly since 2001:

It reflects as well the situation that income mobility in Australia is declining. The report shows that there has been a clear increase in the trend of people remaining in the same income level they were in previous years:

While this might sound good, it is only so if you already have a good income. Increased income stability (and thus decreased mobility) “is not a good development for people with low incomes, since they are more likely to have persistently low incomes.”
The Hilda report also highlights the complete lack of improvement in household incomes since the GFC.
In 2009, the median household disposable income in Australia was $77,411 (in 2015 dollars) – that was 30% higher than it had been six years earlier. But in the six years from 2009 to 2015, median household incomes actually fell 1.5% to $76,225:

Flat-lining real household incomes is a major concern – especially given the continuing record low wage growth we are experiencing. Just last week the governor of the Reserve Bank, Phillip Lowe, suggested that workers were becoming used to low wage rises and that he believed that such a situation “is going to be sustained for quite some time”.
Now clearly we are not in such poor straits as has been observed in the US, where even with recent improvements, real median incomes have been flat for nearly 20 years. But the US is a cautionary tale. Flat median incomes might not mean growing inequality, but it is a situation that does not lend itself to good economic times.
As governor Lowe noted, “if people feel like their wages aren’t growing anymore, they don’t want to spend when they get paid”:

The Hilda report also allows us to gauge what exactly is the median income for Australian households.
The report provides the average and median “equivalised” disposable income. Equivalised income is essentially a figure that enables you to adjust for household size by applying a weighting for each extra adult (50%) and child under 15 (30%) in a household to the original income figure for a single person.
The Hilda calculates that the median disposable income for a single person in 2015 was $46,007. This means the median disposable household income for a family of four would be $96,615:

Using a standard 70/30 income split of the two adults, this would suggest the two adults earn roughly a combined $120,000 before tax.
It is also worth noting that the treasurer justified the raising of the threshold for the 37% income tax bracket from $80,000 to $87,000 to ensure “middle income Australians, those that are on average full-time earnings … don’t move into the second top tax bracket”. But with a median equivalised income of just $46,007, the median before tax income for a single person would be around just $56,000.
And while the report might suggest income inequality is not rising, the disparity in wealth across Australians is starkly apparent.
The report finds that home ownership among those aged under 40 has plummeted since 2002, with the current housing boom in Sydney having a massive impact.
In all capital cities except Canberra, the percentage of people under 40 who owned a home in 2014 was lower than it was in 2002. In Sydney the impact of the surge in housing prices since 2012 is unmistakable.
In 2012, 31% of those aged 18-39 living in Sydney owned a home; by 2014 it was just 20%:

The problem is not isolated in Sydney.
In Melbourne, home ownership rates for those under 40 have fallen from 36% in 2002 to just 21% in 2012. Even in Adelaide, generally seen as one of the better cities for housing affordability, home ownership rates for under 40s has gone from 35% to 25% in the dozen years from 2002.
In the same time the economic differences between home owners and non-home owners have widened.
In 2002, the average income of a home owner aged under 40 was $65,845 – some 79% higher than the $36,857 earned by the average non-home owner. But by 2014, the average earnings of home owners had risen 32% to $87,182, while the earnings of non-homers had risen just 13% to $41,810:

 

The report also finds that home-ownership for under 40s has declined across all income levels, but most starkly for those in the poorest 40%:
In 2002, 19% of those in the bottom income quintile were home owner – this fell by a third to 12.8% in 2012. But for those in the second income quintile the fall was even more drastic. In 2002, 37% of such income earners owned a home, by 2012 that had more than halved to just 17%.

The Hilda report highlights that while it is all very well to split hairs about short-term movements of income inequality measures like the Gini coefficient, for median income households income has now stalled for six years.

It also highlights that while income inequality may have stabilised, the ability to use that income to build wealth has drastically changed. The report provides damning evidence that inequality across generations has increased – with those under 40 now much less able to buy a home than were young people in previous years.
With continuing flat median income growth and a widening disparity between the incomes of those who are in the housing market and those out of it, the problem of inequality will rightly remain a major political issue.