According to recent data from the Australian Bureau of Statistics (ABS), as taken from the National Accounts, Australian household incomes have more than doubled since last decade. However, it seems we are all feeling the impact of interest payable on overall household debt.
Average growth of 58% was recorded in household incomes between 2003/04 and 2011/12, with the highest household net worth quintile income increasing by 68.2% during that time.
Similar, above average growth was recorded for the lowest quintile households, however this was largely due to social security benefits, of which these households received 1.45 times more than the average benefits paid to all households.
In other words, the rich seem to be getting richer, whereas those families whose main source of income is not derived from wages or salaries are seemingly more reliant on government assistance and welfare payments.
More income from jobs and property assets
Of the recorded 58% increase in overall income growth, 41.4% was attributable to “compensation of employees”, or wages and salaries in layperson terms, representing the biggest increases overall.
While further rise in household incomes came off the back of “Gross operating surplus – dwellings owned by persons”.
This measures the return to households from tenanted investment property holdings and reflects the relatively significant increase in rents payable over the last decade, with average annual growth of 5.3% – a higher average than that recorded for the previous decade.
Essentially, this means property investors have enjoyed a boost to their household income in recent times as they benefit from the lucrative returns afforded from holding residential dwelling investments.
Additionally, growth in total property income receivable, which includes interest and dividends payable on financial assets, increased substantially during the last decade.
The biggest growth driver in this sector? Perhaps not surprisingly, it was in the form of superannuation fund earnings, spurred on by legislative and policy changes around SMSFs alongside growth in investment income.
More money, but increasing debt
While Aussie households might be earning more than we were a decade ago, it seems our costs are also increasing and in particular, the interest payable on dwellings.
Use of household income grew by an average 4.4% per annum between 2001/02 and 2012/13, reducing our disposable income by an average of 7.6%. The ABS cites the reason for this as rising interest costs, which have increased at a faster rate than total income received.
Interest payable on dwellings grew by 8.8% per annum between 2001/02 and 2012/13, which is a significant rise compared to the previous period, even though interest rates have been trending lower.
Logically, this is down to the extreme growth in property prices we have witnessed during the same timeframe.
The impact of interest payment debt was most pronounced in the highest income quintile (where not surprisingly a surge in property income was also noted), with income reduced by 10.7% due to interest payments.
This is likely indicative of the higher rate of property investment activity that kicked off early last decade and has continued fairly consistently since, especially off the back of 2008’s GFC, when investors turned increasingly to more stable bricks and mortar assets over shares.