The recession was great for some Australians. Despite the pain of the lockdowns, and nearly a million jobs disappearing, by the end of 2020 Australia’shousehold wealth was surging.

According to the Australian Bureau of Statistics (ABS), household wealth skyrocketed by $501 billion in the last three months of last year, which was the strongest quarterly growth since December 2009.

Wealth per person hit $467,709, and total household wealthhit $12 trillion both records.

How could that be?

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Faced with the prospect of his weekly rent increasing by 18 per cent, Paul Richardson has spent almost a year searching for an affordable rental property. But with housing demand outstripping supply, he hasn’t had any success.

More than 900,000 people were still officially unemployed in December, and the unemployment rate was still 6.6 per cent, so how couldhousehold wealth have been hitting record levels?

It’s because “wealth” and “income” are very different things.

It may have consequences for inequality in this country.

The definition of ‘wealth’

When the ABScompiles its data on wealth and income, it uses an internationally agreed set of standard concepts, definitions and classifications.

“Wealth” refers to the economic resources held by members of a householdafter all of their debts are theoretically paid off.

Wealth is made up of:

• Residential property (familyhome)
• Superannuation savings
• Shares and other financial assets (like bank deposits)
• Other non-financial assets (cars, furniture, artwork)
• Investments in other real estate (investment properties)

A household’s wealth can increase in different ways.

It can increase when the estimated sale price of their home goes up, relative to the size of the principal outstanding on their mortgage.

It can increase when their super account grows. It can increase when their savings account grows.

As you cansee, wealthis a “stock” concept itrefers to thevalue of a household’s assets (minus thehousehold’s liabilities)at_a given point in time_.

Wealth is very different from “income.”

Household income refers to all current payments received by a household that are intended to support, or are available for,current consumption.

For most Australian households, income comes from a few main sources:

• Wages and salaries
• Income from investments (like superannuation, or dividends from shares, or royalties)
• Government pensions and allowances (like the agepensionand JobSeeker)

Less typical income sources include inheritances, lump-sum retirement benefits, and life insurance claims.

Why did household wealth soar recently?

When a country’s household wealth is surging, it means the value of_assets_held by householdsisrising.

But if you don’t own any assets, you’re not benefiting.

According to theABS,the surge in wealth in the December quarter was driven by two main things: property price risesand growing superannuation savings.

Property prices grew strongly towards the end of 2020.

The value of Australia’s residential property (land and dwellings) jumped by$207billion in the September quarter, and $247billion in the December quarter.

ABS officials said the Reserve Bank’s expansionary monetary policy (particularly itshistorically low cash rate target of 0.1 per cent)and government support for the housing sectordrove the surge in wealth for property owners late in the year.

“The December quarter growth in household wealth was driven by rising residential property prices, reflecting record low interest rates, support through government programs such as the First Home Buyer and the HomeBuilder schemes, and pent up demand from buyers,” said Katherine Keenan, the head of Finance and Wealth at the ABS.

The recovery in stock markets also saw superannuation reserves increase by $166 billion in the December quarter.

It means Australians’super accounts have now fully recovered from the losses experienced in the March quarter of 2020.

Household wealth is likelyto keep rising

If youdidn’t withdraw your super savings last year (and extinguish them all) under the Federal Government’s controversial early super release scheme, there’s a chance your “superannuation wealth” willincreasethis year.

If you own property, your “propertywealth” may have already increased, because property prices have been rising since December.

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Property prices returned to record highs in January, exceeding the peak reached in 2017.

In February, house prices posted their sharpest monthly increase since August 2003.

Last week, ANZ economists released new forecasts tippingnational house prices to rise by 17 per cent this year.

But what does it mean for people who don’t own a property?

Wealth inequality is worse than income inequality

In December, the Australian Council of Social Service (ACOSS) released a report called Inequality in Australia 2020: Part 2, Who is Affected and Why.

The report was based on the latest available data from the ABS (for 2017-18), presentinga snapshot of income and wealth inequality in Australia in 2018.

Therefore, it provideda baseline of data against which to assess the impact that COVID-19 (and Australia’s economic policy settings in 2020-21) will have on inequality in coming years.

As the report points out, wealth inequality is a far bigger problem in Australiathan income inequality.

“Even before the COVID recession, the highest 20 per cent of households, with average after-tax incomes of $4,166 per week, had almost six times the income of the lowest 20 per cent, with $753 per week,” said Professor Carla Treloar, director of the Social Policy Research Centre, UNSW Sydney, when the report was released.

“When it comes to wealth, inequality is even more stark: the highest 20 per cent, with average wealth of $3.3 million, have 90 times the wealth of the lowest 20 per cent, with just $36,000 on average.”

The average wealth of the highest 5 per cent wealth group was $6,795,000.

Things getmore stark when you look closerat the data in the report.

In 2018 in Australia, the highest 10 per cent of households by wealth owned almost half (46 per cent) of all household wealth.

The lowest 60 per cent of households, who were younger and poorer, owned just 16 per cent of the wealth.

Australia had the fifth-highest number in the world of people with ultra-high wealth (defined as holding more than US$500 million [$654 million] in wealth).

Why are house prices so important?

Thinkback to the main components of wealth.

According to the ACOSS report, the average wealth per household in Australia in 2018 was made up of:

• Main home (39 per cent)
• Superannuation (20 per cent)
• Shares and other financial assets (19 per cent)
• Investments in other real estate (12 per cent)
• Other non-financial assets (10 per cent)

Ownership of some types of wealth was very concentrated.

According to the report, the highest 20 per cent wealth group owns more than 80 per cent of all wealth in investment properties and shares, over 70 per cent of all superannuation assets, and 54 per cent of all wealth in main homes.

However, high levels of home ownership among retired people on relatively low incomes helps to make wealth holdings across income groups more evenly distributed.

By business reporterGareth Hutchens. This article has been republished from the ABC.