Household income growth stalls over the 2009/10 financial year

The Australian Bureau of Statistics (ABS) released their bi-annual Household Income and Income Distribution data for the 2009/10 financial year this week.  This is an exciting release from the ABS (aren’t they all!) because the data only comes out once every two years and provides a valuable update about household income, where income is derived from, how income is distributed and how much more income we are all receiving (or not receiving).  The most notable information contained within the release is that disposable household incomes were lower in 2009/10 than they were over 2007/08.

The 2009/10 data shows that equivalised (inflation adjusted) disposable household income fell from $859/week in 2007/08 to $848/week in 2009/10.  This represents a fall of -1.3% and it is the first fall in household incomes over the past 14 years.  Although the fall is not a large one, it is important to put it into context.  Between the 2000/01 financial year and 2009/10 financial year, household incomes have risen by a total of 40.2% or an average annual rate of 4.2%. Between the 2005/06 financial year and 2007/08 financial year incomes rose by 16.4%.  Following the 16.4% increase in incomes during the two years to 2007/08, they fell by -1.3% to 2009/10.

Obviously during the most recent period the world experienced the Global Financial Crisis (GFC) which resulted in a slowdown across most developed economies.  Although Australia didn’t fall into a recession during this time, unemployment rose to as high as 5.8% (so people did lose their jobs), bonuses were typically slashed and many employees found it difficult to negotiate salary increases.  This largely explains why household disposable incomes fell in inflation adjusted terms during this period.  It also signals why consumers are so cautious currently, they have relatively less money in their pockets and the world’s economic woes continue, particularly in Europe and North America.

Focusing on home owners and those with a mortgage as opposed to those renting shows households that are currently paying off a mortgage have a greater disposable income.  The figures for equivalised household incomes are as follows:

  • Owner without a mortgage – $793/week
  • Owner with a mortgage – $957/week
  • Renters – $729/week

The data also provides average gross household incomes which indicate that as at the end of the 2009/10 financial year the average household with a mortgage had a weekly income of $2,238/week.  That equates to an annual household income of $116,376.  Disposable incomes for those with a mortgage are typically 21% higher than those with no mortgage and 31% higher than those people renting.

The number of households with a mortgage rose from 35.1% in 2007/08 to 36.2% in 2009/10 while households without a mortgage fell to 32.6% from 33.2% and rental households declined to 28.7% from 29.7%.  Undoubtedly the strong increase in property values during recent years has resulted in fewer households owning their home outright.  The most recent data shows that 32.6% of households are owned outright however, this figure has been trending lower since 1995/96 when 42.8% of households were owned outright.

With more households than ever having their properties mortgaged it is no wonder consumers are nervous.  Until recently the RBA was suggesting that interest rates were going to have to rise in order to make room for the mining boom.  Although this talk has tempered somewhat recently, with the vast majority of mortgagees on a variable mortgage any change to interest rates has an instant impact on homeowners, of which a greater proportion have a mortgage than ever before.

Overall the data provides an important insight into the consumer’s mindset.  Households had less disposable income in 2009/10 than they did two years previous and they may still have less.  More households have a mortgage than ever before and as a result there is increasing interest rate sensitivity.  Finally after the impact of the GFC many more households are aware that bad news emanating from countries external to Australia can impact significantly on Australian households.

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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