Earlier this year I wrote a piece on the widening wealth gap dividing the UK, suggesting this is an apparently global phenomenon now…even in so-called developing countries that are becoming increasingly westernised.
Just think of Chinese factory workers who exist in squalor, while the newfound gentry of the Asian superpower snap up property investments across the globe and generally live ‘high on the hog’.
Back in March, reports were emerging from the UK to indicate that young adults were managing to save less than two thirds of what they could rustle up in 2005. Whereas the top 20 per cent of earners at the time were ‘more financially secure than going into the downturn (GFC).’
I mentioned in the previous article that the distinct class division currently occurring across the world is ‘largely between those who went into the GFC with some kind of asset base behind them – particularly if it happened to be a property or two – and those who have come of age in a post-GFC fiscal reality.’
Fast forward just nine short months later, and Australian regulators are worrying about the same phenomena occurring on our shores; where buying (and renting) a home in inner city Sydney and Melbourne is becoming the Great Australian Pipedream for younger generations.
In a recent Vox column, University professors Ravi Janbur and Joseph Stiglitz argued that not only rising income inequality, but also rising rents were assisting in widening the wealth divide.
Both the large capital gains and growing rental yields enjoyed by equity laden property investors are indeed tipping the wealth scales well and truly in their favour here in Australia.
So how do you address this wealth gap before it tears apart the social fabric of humanity, creating sub-sectors of elaborate opulence contrasted with poorer communities lacking direct access to essential infrastructure and amenity?
Back to the UK
Janbur and Stiglitz looked again to the UK, where wealth distribution has been widely studied, to answer three key questions at the heart of this issue…
- What portion of all the nation’s personal wealth does the top 1% hold?
- Is wealth a lot more unequally distributed than income at the top of the food chain?
- How much of an increase have we seen in wealth concentration this century?
Using various data sets, including administrative tax figures on estates at death, the authors found that the top one per cent of individuals (total net worth) controlled between one fifth and one quarter of the nation’s entire personal wealth.
Further, the share of the top 1 per cent in total net worth (individuals) is around double the share of the top 1 per cent in total net income (after tax). And finally, indicators suggest the top shares in wealth were increasing between 2001-2003 and 2008-2010.
Interestingly, the pair conclude that while there’s clearly a growing wealth divide across the UK that’s largely mirrored on a global scale, it’s virtually impossible to get an entirely distinct answer to the three questions they initially seek to resolve.
This is largely due to challenges in obtaining complete and concise evidence of wealth distribution post-2000 across the UK. Can you imagine how tricky it would be to try this at home?
One for Aussie policymakers to ponder
As tough of a problem the wealth divide is to tackle, it’s certainly one that policymakers will increasingly have to account for, much like APRA did when stepping in to curb investment based borrowing and cool ‘runaway’ housing sectors.
When you consider NSW for instance, where you already need to control a substantial wealth pool in order to live anywhere within cooee of the capital, the potential for worsening social issues into the future becomes glaringly apparent.
What happens when all of your middle-income support personnel can no longer afford to live OR commute to areas in order to provide the local community with essential services, such as nursing, teaching and emergency assistance?
This is indeed a 21st century problem that must be addressed sooner rather than later…and an important sociological consideration for property investors to be mindful of.