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THE FAMILY HOME - VALUE AND EQUITY
Dwelling values also vary according to the type of dwelling structures. Nearly all (90%) of owner-occupier households live in separate houses, with 5% in townhouses and other semi-detached houses, and 5% in flats, units and apartments. Separate houses are, on average, worth more than other types of dwellings.
Equity in the home
Housing wealth for owner-occupiers is defined as their equity2 in the family home (including land). It is accumulated through the deposit placed at the time of purchase, through paying off the mortgage principal, and through capital gains and losses as the market value of the dwelling rises and falls over time. The equity is measured as the value of the dwelling, as estimated by the householders themselves, less the reported value of any outstanding loans secured against the dwelling.
For some buyers, high interest payments, combined with falling dwelling values in some periods and some locations, as well as any additional borrowings they have made, may even result in negative equity some years after purchase.
In general, however, the amount of equity held in the family home follows a life-cycle pattern. People accumulate a larger financial stake in their homes as they grow older. On average, young home owners have a smaller equity in their home than older home owners. This is because they may not have made enough mortgage repayments since purchasing their home to significantly reduce their loan principal.
However, even for young home owners, the equity in their homes is high. In 1995-96, home owners aged under 35 had an average equity of $85,000 in their homes - 58% of the mean value of dwellings owned by this age group, and over half of the mean equity of all owner-occupiers (table 8.16).
Housing wealth for home owners increased with age up to 55-64, when the mean equity holding in 1995-96 was $173,000. For households in the older age group (65 and over), the value of equity was lower ($155,000). Elderly people were, on average, in smaller and lower-value dwellings.
Larger households generally lived in more expensive homes (reflecting a need for larger living areas) and also had a higher level of equity in their home. For example, the average value of equity owned by couples living with their dependent and non-dependent children only was $173,000, a value 20% higher than the average for all home owners. In contrast, one-parent households had a considerably lower level of equity ($121,000).
How much of Australia's household wealth is in the family home?
In 1995-96, the total value of all owner-occupied dwellings (including land) in Australia was estimated at $820b. Owner-occupiers held $690b in equity in their homes, or 84% of the value of total owner-occupier dwelling stock.
However, households have wealth holdings in many other forms of assets. Estimates from the Australian National Accounts (which are not completely comparable to the estimates based on household responses) show that the value of dwellings and residential land represents 50% of the total value of assets owned by the household sector. Almost 85% of this was for dwellings owned by owner-occupiers, the remainder being dwellings owned by households for rental investment, holiday homes and vacant dwellings. Equity in superannuation funds accounted for 17% of household assets, cash and saving deposits 12%, and shares and other securities 8%.
1 Value of dwelling is the estimated value of the dwelling and land, as reported by the household respondent in the Survey of Income and Housing Costs. It should be noted that estimates provided by household members may not necessarily agree with the market price or those obtained from certified valuers.
2 Equity in the home is the stated value of the dwelling less the stated value of outstanding mortgages and loans secured against the dwelling. The value of outstanding loans may have been underestimated by some households, such as where the original loan was extended for non-housing purposes. As a result this may have overstated the value of the equity.
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