B Invested

Why The Rich Get Richer And The Poor Get Poorer

When the fallout of more than a year of rolling Covid lockdowns started to reveal itself, there was something that may have seemed a little odd.

While the mainstream media was telling us all about soaring unemployment, queues of people outside Centrelink offices and the devastation of some of the country’s most important industries, we all sat and waited for the big property crash that was being predicted.

A property analyst from SQM research were saying that up to 30% of property values would fall out of the market and it seemed inevitable…with all these people losing their jobs, mortgage defaults must surely follow and then prices would tumble, right?

We waited and waited until, instead of a crash, there was a boom. The massive levels of stimulus pumped through the economy by the federal government and RBA saw Aussies start putting all their money into property.

And as markets around Australia picked up the pace and headed for double digit growth and beyond, the already existing wealth gap between those who owned property assets and those who were trying to save to buy something began to widen exponentially.

Billionaires benefit big time

In the past year, Australia’s billionaires have grown their wealth by more than 50% according to the Bloomberg Billionaires Index.

Meanwhile, the richest 10% of Aussie households own close to 50% of the country’s private wealth, comprised of various investments and asset classes. These folk have an average net worth of between $4 million and $5 million. A well off middle class of 30% of people own 38% of the wealth, usually a family home, an investment property or two and maybe some shares. Their net worth is upwards of seven figures. Then there’s the bottom 60%, many of whom are younger Aussies, less than 20% of the household wealth and an average net worth of less than $300,000, made up of some housing and superannuation.

The have and have nots

If you take a look around Sydney, or Melbourne, which have Australia’s two biggest housing markets, you’ll be hard pressed to find a single suburb where the average income would service a mortgage on a median priced property. As a matter of fact, in Sydney, there is not one.

So how are people able to afford to live in their suburbs? They only can because they already do. Confusing? The existing value of their homes from previous generations, which remain in the family, is often the means for the deposit that gets them their next home. There are even suburbs where houses have gone up in value by an average of $1 million per property since the first Covid lockdown happened.

It means that if you are one of ‘The Haves’…ie you have property already, the market just made you a bucket load of money last year. If you are one of the ‘Have Nots’…say you were saving to buy a home, well the last year has just seen the goal posts move that much further away. The result must have been devastating for so many people.

And the gap widens again

The property owners can now use the windfall generated by the last year to invest in more income producing investment properties, growing their own base of wealth further and further and making it harder and harder for everyone else.

Those without properties have no choice but to carry on with the grind, saving more and more money and slaving away for a salary to get a chance to get to where they want to be. The problem then is that the cash they are saving is earning them zero return while inflation means that every year their cash is worth less and less.

So what’s the point?

Well, the good news is that it’s never too late to begin investing. As interest rates stay low, cash will continue to be worth less and less and quality debts like investment properties are the best way forward. And there are plenty of good property deals out there still to be had.

If you want to build a property portfolio and become one of the Aussies that rides value booms rather than getting left in their dust, reach out to b Invested. We can help you set your financial goals and get started on the path to financial freedom.