austaralian property is over priced, page-3

When we think of the typical Australian family we do not think of young singles, childless couples, empty nesters or retirees.

A truer picture of the economic well-being of the typical Australian family is given by looking at the incomes of those households comprised of a couple with at least one dependent child and headed by someone of prime working age.

These households account for 41 per cent of the population.



In 2005 the median disposable income of all households was $48,193.

In contrast, the median disposable income of the typical Australian family as we have defined it was $69,073, 43 per cent higher.

The average income for these households was $76,778, 37 per cent higher than the average for all households.


The standard of living afforded by a disposable income close to $70,000 is comfortable by any measure and conflicts with the widespread view of struggling families.

Do the median and mean figures conceal a wide disparity in income levels among typical families?

In fact the spread of incomes is significantly narrower for typical families than for all households.

There are very few typical families with low incomes; only 18 per cent have disposable incomes below $45,000. The picture is very different for single parent families where low incomes are much more prevalent and the narrative of struggling families has much greater validity.



The Australia Institute

Are mortgages killing the middle class?


There is a widespread view that Australians are suffering from ‘mortgage stress’ and that the pain has spread to middle-class suburbs across the nation.


Media reports give the impression that the bulk of the population is finding it difficult to make ends meet as mortgage repayments rise.

In fact, very few middle-class households suffer from any form of mortgage stress. Defining ‘middle class’ as those households with disposable incomes between the 30thand the 80thpercentiles, nearly two-thirds (63 per cent) of middle-class households do not have mortgages at all.


Of those who do, 41 per cent have mortgages under $100,000 and nearly 80 per cent under $200,000.


Only eight per cent of middle-class households have mortgages over $200,000.


Is the middle class shrinking?

The popular narrative of the struggling middle class sometimes suggests that, because of an inability to cope with financial pressures, the middle class is shrinking, even ‘disappearing’.

Here we first define the middle class as those with disposable incomes higher than the bottom 30 per cent and lower than the richest 20 per cent.

Did the middle class shrink over the 11-year period 1994-95 to 2005-06 and, if so, did those who left its ranks get pushed up or dragged down?

To answer this question, we used the following technique.

For the base year 1994-95, we first found, as multiples of the median, the lower and upper income boundaries of the ‘middle’ 50 per cent of households (i.e. those with disposable incomes between the 30thand the 80thpercentiles).


Then we took the median level of disposable income for 2005-06 and applied the 1994-95 multiples of the median to the 2005-06 median to find the new cut-off points for the middle class.

Finally, we calculate the proportion of households that fell within these cut-off points in 2005-06.

If it is less than 50 per cent of all households then the middle class has shrunk, if more than 50 per cent then it has grown.

The results show that the middle class has not shrunk over the 11 years to 2005-06 but has in fact grown slightly, from 50 per cent of households to 51.1 per cent of households.


The difference is small but it disproves the claim that the middle class is shrinking, at least when measured in this way.

The growth in the middle class has been due mostly to a small migration of households from the high-income category.


Obviously, the incomes of all groups grew over the period in question. But did they grow by the same extent? The analysis shows that, although the average real income of the middle class rose 27 per cent over the 11 years to 2005-06, low-income households saw their incomes rise by 33 per cent and those of high-income households grew by 31 per cent.


Perception versus reality

The data show that few typical Australian families are struggling financially; in fact, most are doing very well.

Contrary to the headlines, fewer than one in ten middle-class households are suffering from mortgage stress; most do not have mortgages.

How can the difference between the perception of middle-class distress and real financial health be explained?

Three factors may be at work.

Firstly, the constant reinforcement of the message of middle-class distress may persuade Australians that this describes their own situation irrespective of their real financial position.

Second, there is considerable evidence that middle-class Australians focus not on what they have but on the gap between what they have and what they want, creating a sense of material deprivation in a time of plenty.

This not only prevents people from appreciating their good fortune but induces government to provide welfare to households that are not in need.

Third, middle-class Australians may be displacing anxieties about moral decline, pressure to succeed and fears about world affairs onto financial concerns. In other words, when middle-class Australians believe they are struggling, it may be that they are struggling with things other than their finances.




The State of the Middle Class.

Images of the Australian middle class Middle-class Australians are doing it tough. They are finding it increasingly difficult to maintain a decent standard of living.

Mortgage stress is biting hard with recent rises in interest rates, and belts are being tightened, a situation not helped by rising prices of petrol and groceries.

At least, this is the impression of the state of the middle class according to popular discussion, media reports and political oratory.

Both sides of politics deploy the rhetoric of ‘struggling families’ and ‘battlers’, presumably because they want to communicate that they can feel the pain of ‘ordinary families’ and take measures to ‘ease the squeeze’.

A number of academic studies in recent years have reinforced the view of the struggling middle class. Using measures of wage rates, Bob Gregory (1993) showed that during the 1970s and 1980s the middle class was being ‘hollowed out’.

Michael Pusey (2003) argued that middle Australia sees itself suffering as a result of economic reform - increasingly pressured, time squeezed, anxious about bills and worried about moral decline.

Pusey reports a widespread view among ‘middle Australia’ that people are having to make ‘tremendous effort and sacrifice’ in order to get along, their ‘deepening insecurity’ and the ‘pain’ that they experience as a result, for example, of the decision to send their children to private schools (Pusey 2003, p. 78-9).

Most perceive a widening gap between ‘the haves and the have-nots’ and many see themselves at the wrong end of the divide.


In short, middle-class Australians appear to have a sense of grievance, one constantly reinforced by the media and politicians. But how much pain is the middle class really experiencing? Hamilton (2003) has argued that a distinction should be drawn between real and imagined hardship, and that many middle-class and even wealthy Australians feel a sense of material deprivation because they focus less on what they have than on the gap between what they have and what they want.

This ‘deprivation syndrome’ explains the sense of grievance that political leaders appeal to and reinforce.The public debate that has generated, or at least perpetuated, the sense of middle-class deprivation is fuelled by various studies and statistical publications that produce numbers that seem to support the view.

But those who work with numbers know that their meaning is highly dependent on context and interpretation. On the other hand, well-chosen and clearly interpreted numbers can transform our understanding of social situations. In this paper we test a number of popular views about the state of the Australian middle class against the statistical data.



The Australia Institute

Is the typical Australian family struggling?

The most widely quoted figure used to indicate the financial position of Australian families is the ABS’s median household disposable income.

In 2005-06 the median, or middle, level of disposable income for Australian households was $46,613 ($894/week) (ABS 2007).

Using HILDA data the median disposable income for allhouseholds in 2005 was $48,193.

This figure includes all types of households, including those headed by workers just starting out on their careers and those at the end of them or retired.

Early in adulthood and after retirement incomes are usually much lower than during prime working age.

If we count only households headed by an adult aged between 25 and 54, the range usually used to define prime working age, the typical level of disposable income increases from $48,193 to $58,282, 21 per cent higher.



When we think of the typical Australian family we do not think of young singles, childless couples, empty nesters or retirees.

A truer picture of the economic well-being of the typical Australian family is given by looking at the incomes of those households comprised of a couple with at least one dependent child and headed by someone of prime working age.

these typical families make up 25 per cent of all households, while all prime age households comprise 58 percent of the total.

Although only a quarter of households, prime age couples with children make up 41 per cent of the population, and all prime age households account for 68 per cent of the population.

It is apparent that in 2005 the median disposable income of the typical Australian family was $69,073, 43 per cent higher than the median income for all households.

The average income for these households was $76,778, 37 per cent higher than the average for all households.

The standard of living afforded by a disposable income close to $70,000 is comfortable by any measure and conflicts with the widespread view of struggling families.

But perhaps the median and mean figures conceal a wide disparity in income levels among typical families.


In fact the opposite is the case. distribution of disposable incomes for all households and households comprised of prime working age couples with children.

It is apparent that the spread of incomes is significantly narrower for typical families than for all households.

Using the inter-quartile range as a measure of spread, the middle 50 per cent of prime age couple households with children have disposable incomes ranging from $51,321 to $91,389 (so a quarter receive less than the lower amount and a quarter receive more than the higher amount).

The equivalent range for all households is $24,541 to $72,083. This gives an inter-quartile range for typical families of a little over $40,000 compared to around $47,500 for all households.

In other words, there are very few typical families with low incomes; only 18 per cent of typical families have disposable incomes below $45,000.

While comfortable for a single person, an income of $45,000 is modest for a family with two adults and one or more children.

It should also be remembered that The discrepancies between ABS and HILDA data are explained in the methods section in the appendix.5The definition of a dependent child is explained in the appendix.


Are mortgages killing the middle class?

There is a widespread view that Australians are suffering from ‘mortgage stress’ and that the most pain is being felt in middle-class suburbs across the nation, even extending into the wealthiest suburbs.

It is a hot political issue, one fanned by media reports. Launching the Australian Mortgage Industry ‘Stress-O-Meter’ in 2007, Fujitsu Consulting estimated that 70,000 households are now experiencing mortgage stress across Australia, a 52 per cent rise in the last 12 months.

The consulting group stated that ‘while the traditional “battlers” continue to be hit hard, the extent of mortgage stress, and potential problems, have now reached mainstream Australia’ (Fujitsu 2007).

Media reports interpreted the survey results as confirmation that the bulk of the population is finding it difficult to make ends meet.


The Herald Sun in Melbourne led with the headline ‘Mortgage stress on the rise’ and carried claims that mortgage stress is ‘moving further and further into middle suburbia’ (Ife 2007). A similar message was delivered by a series of prominent stories in the Sydney newspapers.

The Daily Telegraph ran a front page with the headline ‘Living on the edge’ and the Sydney Morning Herald described the story of a single mother ‘Gambling on good health to make ends meet’ and pay-off her mortgage.

The papers dwelt on the ‘suffering’ and the growing number of households experiencing ‘mortgage stress’ (Vallejo 2007; Tibbits 2007). Some of the articles discussed the position of people on low incomes, who experience genuine hardship, as if the circumstances of these people are equivalent to those of middle-class mortgagors.


The tenor of the articles was that large numbers of Sydney residents find themselves under financial pressure because of the size of their mortgage repayments compared to their incomes. The popular impression that most Australians are doing it tough and are trapped in a difficult situation that is not of their making is reinforced by political leaders.

In July, the Shadow Treasurer stated that ‘half a million households are in stress. … They’re in stress. They’re finding it hard to make ends meet’ (Swan 2007).

The Treasurer and the Prime Minister echo these comments but they have the difficult job of simultaneously sympathising with ‘struggling’ Australians and explaining to the same people that the economy has been growing strongly and they have never had it so good.

In July, when asked whether he thought people ‘are doing it tough’, the Treasurer replied, ‘I think people are always doing it tough’.

Yet in the next sentence he said: People always have worries. But if you are worrying about getting a job, your worry should be a lot less today than 10 years ago.

If you are worried about interest rates they are a lot lower than they were 10 years ago. If you are worried about incomes, they are higher than they were 10 years ago (Costello 2007).

The truth is that very few middle-class households can be suffering mortgage stress because very few middle-class households have large mortgages. Using the HILDA Survey and defining ‘middle class’ as those households with disposable incomes between the 30thand the 80thpercentiles, Figure 4 shows the size of mortgages.



Nearly two-thirds (63 per cent) of middle-class households do not have mortgages at all.

Of those who do, 41 per cent have mortgages under $100,000 and nearly 80 per cent under $200,000.

Amazing stats when u think about it....



Of those middle-class households that have mortgages the median amount owing (including second mortgages on the same residential property) is $125,000.

Only eight per cent of middle-class households have mortgages over $200,000.


The State of the Middle ClassHeadey, B. 2007, ‘HILDA’s Household Financial Accounts: Their value for developing improved assessment of economic well-being & poverty’, Conference Paper, Melbourne Institute of Applied Economic and Social Research, University of Melbourne, July, Melbourne.Howard, J. 2007, House of Representatives Official Hansard, Commonwealth of Australia, 26 March, p. 25.Ife, H. 2007, ‘Mortgage stress on the rise’, Herald Sun, 17 August, Melbourne.Leigh, A. 2006, ‘Political economy of tax reform in Australia’, Public Policy, Vol. 1, No. 1, pp. 52-60.Magill, P. 2004, ‘Changes put squeeze on the middle class’, West Australian, 11 February, Perth.Megalogenis, G. 2005, ‘Hollowing out the backbone – Economy and Society’, Australian, 4 June, Sydney.Melbourne Institute of Applied Economic and Social Research (MIAESR) 2006, Household, Income and Labour Dynamics in Australia (HILDA) Survey Annual Report 2006, University of Melbourne, Melbourne.Pusey, M. 2003, The Experience of Middle Australia: The Dark Side of Economic Reform, Cambridge University Press, Cambridge Rintoul, S. 2000, ‘The new battlers – Advance Australia where’, Australian, 17 June, Sydney.Rose, S. 2007, Social Stratification in the United States, revised and updated, The New Press, New York.Rudd, K. 2007, House of Representatives Official Hansard, Commonwealth of Australia, 27 March, p. 20.P. Saunders, C. Thomson and C. Evans, 2000, Social Change and Social Policy: results from a national survey of public opinion, Discussion Paper No. 106, Social Policy Research Centre, University of New South Wales, Sydney.Saunders, P. 2005, The Poverty Wars: Reconnecting research with reality, UNSW Press, Sydney.Senate Community Affairs Reference Committee (SCARC) 2004, A Hand Up Not A Hand Out: Renewing the fight against poverty (Report on poverty and financial hardship), Commonwealth of Australia, March, Canberra.Siminksi, P., Saunders, P., Waseem, S. and Bradbury, B. 2003, Assessing the quality and inter-temporal comparability of ABS household income distribution survey data, Social Policy Research Centre, Discussion paper No. 123, April.Swan, W. 2007, ‘Interview: Wayne Swan’, Sunday Program, Channel Nine, 15 July, Sydney.
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The Australia Institute26Tibbitts, A. 2007, ‘Gambling on good health to make ends meet’, Sydney Morning Herald, 7 August, Sydney.Vallejo, J. 2007, ‘Living on the Edge – Faces of the mortgage squeeze on the city fringes – Special Report’, Daily Telegraph, 18 August, Sydney.Vinson, T. 2007, Dropping off the edge: the distribution of disadvantage in Australia, A report of Jesuit Social Services and Catholic Social Services Australia, Melbourne.Wooden, M. and Watson, N. 2007, ‘The HILDA Survey and its Contribution to Economic and Social Research (So Far)’, The Economic Record, Vol. 83, No. 261, pp. 208-231.
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27The State of the Middle ClassThe Australia Institute promotes a more just, sustainable and peaceful society through research, publication and vigorous participation in public debate.The Australia Institute is an independent non-profit public policy research centre. It carries out research and policy analysis and participates in public debates on economic, social and environmental issues. It undertakes research commissioned and paid for by philanthropic trusts, governments, business, unions and community organisations.The Institute is wholly independent and not affiliated with any other organisation. As an Approved Research Institute, donations to its Research Fund are tax deductible for the donor.PhilosophyThe Institute was established in 1994 by a number of individuals from various sections of the community. They share a deep concern about the impact on Australian society of the priority given to a narrow definition of economic efficiency over community, environmental and ethical considerations in public and private decision-making. A better balance is urgently needed.The Directors, while sharing a broad set of values, do not have a fixed view of the policies that the Institute should advocate. Unconstrained by ideologies of the past, the purpose of the Institute is to help create a vision of a more just, sustainable and peaceful Australian society and to develop and promote that vision in a pragmatic and effective way. MembershipMembership is a valuable means of contributing to the objectives of the Institute. The annual fee is $88 (with a discount for low-income earners). Members receive the Newsletter, published four times a year, and are entitled to Institute papers free of charge on request. They also receive discounted admission to some Institute functions.If you would like to purchase our publications or support The Australia Institute through membership or donation please contact:PO Box 4345Manuka ACT 2603Tel: (02) 6162 4140 Fax: (02) 6162 4144Email: [email protected]: www.tai.org.au
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The Australia Institute28Discussion papers available from The Australia Institute 97Macintosh, A. Climate Change and Australian Coastal Shipping, October 2007.96Fear, J. Under the Radar: Dog-whistle politics in Australia, September 2007.95Hamilton, C. and Downie, C. University Capture: Australian universities andthe fossil fuel industries, June 2007.94Macintosh, A. and Downie, C. A Flight Risk? Aviation and climate change inAustralia, May 2007.93Rush, E. and La Nauze, A. Letting Children Be Children: Stopping the sexualisation of children in Australia, December 2006.92Wilkie, A. All Quiet in the Ranks: An exploration of dissent in Australia’s security agencies, November 2006.91Macintosh, A. and Downie, C. Wind Farms: The facts and the fallacies, October 2006.90Rush, E. and La Nauze, A., Corporate Paedophilia: Sexualisation of children in Australia, October 2006.89Hamilton, M. and Hamilton, C., Baby Boomers and Retirement: Dreams, fears and anxieties, September 2006.88Macintosh, A. and Wilkinson, D., School Vouchers: An evaluation of their impact on education outcomes, July 2006.87Rush, E. and Downie, C., ABC Learning Centres: A case study of Australia’s largest child care corporation, June 2006.86Saddler, H., Muller, F. and Cuevas, C., Competitiveness and Carbon Pricing: Border adjustments for greenhouse policies, April 2006.85Argy, F., Equality of Opportunity in Australia: Myth and reality, April 2006.84Rush, E., Child Care Quality in Australia, April 2006.83Macintosh, A., Drug Law Reform: Beyond Prohibition, February 2006.82Macintosh, A. and Wilkinson, D., Why the Telstra Agreement Will Haunt the National Party: Lessons from the Democrats’ GST Deal, September 2005.81Macintosh, A. and Wilkinson, D., Environment Protection and Biodiversity Conservation Act: A Five-Year Assessment, July 2005.80Fingleton, J., ed. Privatising Land in the Pacific: A defence of customary tenures, June 2005.