Australia’s economy has gone so well that we’ve ended up on a pretty weird list: we show up in the top 20 countries for growth of wealth over the last decade.

This data comes from New World Wealth and shows up in a new report from AFRAsia, a bank based in Mauritius.

The fastest growing countries for wealth are a ragtag bunch, for one good reason. What Ethiopia, India, Vietnam and China have in common is they started off with a lot less. It’s far easier to double your wealth per capita when you start off with a sum like $10,000, rather than $150,000. (Australia’s wealth per capita sits at US$279,200 in 2017, according to the report.)

Australia’s appearance on this list, halfway between Indonesia and Rwanda, is a sign this country of ours is very peculiar. Wealth has been growing at an exceptional speed, driven by huge growth in housing prices.

That is good and bad.

Compared to a country like Saudi Arabia, where oil is concentrated in the hands of a few, Australia’s source of wealth is more democratic. Just 28% of our wealth is held by millionaires (in USD terms). That’s the same as Sweden and lower than Saudi Arabia (60%), Russia (58%), and the US (36%). Home ownership in Australia is also more widespread than company ownership.

This is not to imply rising house prices create a utopic equality. Anyone who does not own a house, including this correspondent, tends to feel rather despondent about rising house prices. And home ownership rates are falling. But 65% of Australians still own a home.

(The report also shows that Australia is the world’s most popular destination for migrating millionaires; 10,000 foreign millionaires came to Australia last year, ahead of America, which attracted 9000. This data-point may be useful in thinking about whether Australia needs to cut the rate of top personal income taxes. But back to housing.)

The trouble with housing-centred wealth

Wealth based on housing has one peculiar feature: if you want to continue to live in Australia, it is hard to make it spendable. Housing is illiquid.

If you sell your house you still need to buy housing services — most often by buying another house. That will cost a lot. So housing wealth can be frustratingly inaccessible.

A common way in which housing wealth becomes spending money is if you downsize in the same city. Moving from a $1 million home to one 20% cheaper yields $200,000 in spending money. Not a bad bonus for the empty-nester trying to find a lower maintenance lifestyle.

This charming feature of the housing market is, of course, mirrored by equal and opposite frustration for the young family seeking extra space. Trying to move out of the small home and into the large home now requires an additional $200,000.    

This is not a pure zero-sum game, but it is close. The lack of upside for Australia as a whole is understood at the highest levels. A few years ago, when he was a humble deputy, the man who is now Reserve Bank governor pointed out that rising house prices are mostly an illusion of wealth.

“Have we really become wealthier as a nation simply because the value of our land has increased? The answer would clearly be yes if this increase was because we had discovered more land. To my knowledge, though, this has not happened,” said Philip Lowe in August of 2015.

“From the perspective of society as a whole, much of what is gained on the one hand is lost on the other: there are windfall gains from higher land prices but then everyone pays more for housing services.”

Après le déluge

Now housing prices are falling in Australia. Sydney is down by 2.1% in the year to May and Melbourne by 0.9%, according to Corelogic data. ANZ Bank says the fall is “quite a bit larger” than they expected it to be.

It is unclear if the falls will reverse or continue. On the one hand, economic growth and immigration are strong. On the other, a lot of new housing in the central parts of Melbourne and Sydney is yet to be completed and sold.

We know a fall in housing prices will cause a widespread reduction in wealth. But it won’t change the houses themselves, so the change in wealth won’t affect most people’s buying power. So is it a wash? Unfortunately not.

Where we might run into trouble is at the shops. It is well-known that rising housing prices cause home owners to spend more money. Falling house prices could reverse that effect and crimp the consumer economy. If that happens, layoffs and rising unemployment won’t be far behind, and that will have a real effect.

It will be fascinating to look at the report for Australian wealth growth in 10 years. Anyone want to bet Australia will be in the top 20 in the period 2017-2027?