New figures from UBS show that household wealth in Australia has reached a record-high $17.2 trillion this year, up 6% or $950 billion over the past year. Household wealth per person is now $623,000, among the highest in the world.
However, the growth in wealth has slowed in recent quarters, principally due to stagnating property prices and lower returns from share markets.
Household assets, liabilities, and wealth
Retirement assets boom
Total retirement assets – including super and SMSFs – increased by 11% Year-on-year (YoY) in the fourth quarter of last year to a record-high $4.2 trillion. If super and SMSFs continue to grow at this rate, it means their total assets will increase by $1 trillion every two years.
The fourth quarter rise in assets was driven by growth in super contributions. Coupled with strong asset returns, it resulted in super inflows again exceeding outflows.
Total retirement system assets
Total retirement system assets, year-on-year growth
APRA-regulated super funds grew assets to $2.9 trillion in December quarter, up 3.1% on the previous quarter and 14% over the prior year. Industry funds contributed most to this rise, and they continue to dominate the super landscape, accounting for 51% of total APRA-regulated assets, up from 49.7% the year before.
Superannuation assets
Source: APRA
SMSF assets slide marginally
As the chart above shows, SMSF assets dipped to $1.018 trillion in the fourth quarter, though they were still well up over the year.
While assets slid, SMSF member numbers still grew. ATO figures show there are now 638,411 SMSFs, a net rise of 8,727 in the December quarter and almost 27,000 over the previous year.
Source: ATO, Firstlinks
The figures reveal the majority of SMSFs have assets between $500,000 to $5 million (64%), with 23% holding between $200,000 to $500,000. And while SMSFs are attracting younger members, 85% are still 45 years or older.
As for where SMSFs are investing their money, listed shares still dominate at 27% of total assets, followed by cash and deposits at 16%, unlisted trusts at 13% and commercial property at 11%.
SMSF asset breakdown
Source: ATO, Firstlinks
The two things that stand out in the above chart are the large cash holdings and the small allocation to international shares. On the former, that may change given the lower fixed term deposit rates now on offer. Regarding the latter, it’s hard to tell if this is an accurate figure or not.
However, it does correlate with a recent University of Adelaide study which found that a lack of exposure to overshares shares, especially US tech, had cost SMSFs in recent years:
“Home market bias, limited international diversification, and the drag of small SMSFs were the key drivers of SMSF underperformance compared to APRA-regulated funds in the 2022-23 fiscal year,” the report said.
The data showed that the median rate of return for SMSFs in the year ended June 30, 2023, was 6.8% compared with 8.4% for retail and industry funds.
House pricing: turning back up?
Though super is important, residential property remains the key driver of wealth in Australia. The residential property market is valued at $11.1 trillion, accounting for about 64% of total household wealth.
And though it’s been a drag on wealth in recent months, that could be about to change as the latest data indicates that the housing market may be bottoming. Average home prices rose 0.3% in February, after a brief three-month downturn of just 0.4%. The upswing came in anticipation of, and then confirmation of, an RBA rate cut which boosted buyer confidence. Most cities saw gains with the recent losers of Melbourne, Hobart, Canberra and Sydney picking up as the booming cities of the last two years – Brisbane, Adelaide and Perth – continue to slow as poor affordability impacts them.
Whether the housing upturn continues will depend on the next RBA moves, whether population growth continues to slow, and which party wins the Federal Election and their economic priorities.
The soft spot in the wealth boom
If there’s a soft spot in Australia’s growing wealth, it’s debt. The household liabilities-to-income ratio has ticked up to a near-record of 198%, according to UBS. That’s among the highest in the world, albeit the ratio has remained relatively flat over the past seven years.
However, the household wealth-to-income ratio is higher still at 1053%.
Household liabilities-to-income ratio hit near record levels
What this shows is how a multi-decade asset and debt boom has underpinned our wealth boom. And how we’re dependent on more rises in asset prices to spur further gains in wealth.
The issue is that asset prices have detached themselves from incomes to such a degree that it’s led to the current ‘cost-of-living crisis’. And it’s likely a big reason why the growth in Australia’s wealth has slowed over the past year.
In sum, Australia remains a fabulously wealthy country, though the foundations of that wealth have started to fray in recent years.
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In my article this week, I revisit one of my most popular articles from last year, 16 ASX stocks to buy and hold forever, and answer the many questions I’ve got from readers since that time, including what stocks on the list may be worth buying now and whether I’d make any changes to the list.
James Gruber
Also in this week's edition...
Julie Steed outlines the key superannuation rates and thresholds that will apply from 1 July 2025, following the recent release of earnings and CPI data. She'll also detail the primary considerations and opportunities leading up the end of the financial year.
Reporting season saw some volatility in the share prices of the Big Four banks, after their barnstorming performance in 2024. What lies ahead for the banks? Hugh Dive takes a closer look.
Understanding investment risk in superannuation is crucial for your retirement account. UniSuper's Annika Bradley has a guide on how to define, take, and manage risk to select the right investment mix for you.
Mid-last year, Warren Bird wrote of how money supply growth was the 'forgotten' indicator of inflation, and that it signalled moderating inflation for the following 6-12 months. That proved correct, and Warren gives us an update on where we sit now.
Emerging markets get a bad rap even though they've delivered strong long-term returns. Siddharth Jain thinks their underperformance over the past 5-10 years is set to turn around thanks to an inflection point in earnings.
Has Australian commercial property bottomed? Charter Hall's Steven Bennett and Sasanka Liyanage say a sharp fall in supply and renewed demand points to a better 2025.
Lastly, in this week's whitepaper, Allianz Retire+ explores the unique challenges and opportunities with retirement planning and the need to adjust to the demands of today's environment.
Curated by James Gruber and Leisa Bell
A full PDF version of this week’s newsletter articles will be loaded into this editorial on our website by midday.
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