Property Wealth the Ultimate Incentive for Home Ownership

There are strong links between wealth and equity in housing
Photo: Jeff Belmonte

For those pondering the age old question of whether to rent or buy, it may be of interest to know that having equity in housing is strongly linked to being wealthy. 

In fact, it can even be said that building equity is popularly seen as the main way to accumulate wealth in Australia.

Net Worth in Renter Households Vastly Lower than Homeowners with Equity in Property

ABS’s 2013 publication on Household Income and Income Distribution showed just how wide the gap has become between the rich and the poor in Australia. 

According to the study, the wealthiest 20 per cent of households in Australia account for 61 per cent of total household net worth, whereas the poorest 20 per cent account for only 1 per cent of total household net worth.

Interestingly, net worth in renter households was on average only 13 per cent of the net worth of owner households with no mortgage, and about 20 per cent of the net worth of owner households with a mortgage. 

Renters on the Rise as Building Equity Becomes More Difficult

Although the statistics above clearly point to the advantage of using property for wealth accumulation, home ownership has actually declined from 71 per cent in 1994-95 to 67 oer cent in 2011-12.

Households renting from a private landlord have grown on the other hand, from 18 per cent in 1994-95 to 25 per cent in 2011-12.

“Building equity is popularly seen as the main way to accumulate wealth in Australia.”

The problem has been attributed to either the unaffordability of housing for younger buyers or a shift in their attitude regarding property ownership.

We have all been hearing about the rising house prices, but what about the shift in attitude towards renting?

Long commutes deter Gen Ys from buying in outer suburbs
Photo: Reinis Traidas

Jessirca Irvine of The Telegraph and Bridie Jabour of The Guardian have highlighted typical challenges faced by today’s younger generation, which prompt them to rent in popular locations rather than buy in outer suburbs. 

Some of these challenges include job location, long commutes, traffic congestion and having to save a larger deposit at lower interest rates.  

Younger Generation still Aspire to Build Property Wealth

However, recent studies seem to suggest that today’s young people are still keen to use equity in property as a way to build wealth and secure financial freedom.

For example, in a national survey of more than 2000 of Australia’s Future Leaders, more than 9 out of 10 plan to buy a property and around 70 per cent believe home ownership is as important to them as it was to their parents.

“Today’s young people are still keen to use equity in property as a way to build wealth and secure financial freedom.”

Results from the Mortgage Choice First Time Property Investor Survey also highlighted the importance of owning property for the younger generation, with 75 per cent of Gen Ys surveyed believing equity in property would help to set them up financially for the future.

It seems the notion of the building wealth through equity in housing is alive and well amongst young Australians, even if it takes them longer to accumulate the deposit.