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IMPACT ON INCOME DISTRIBUTION

The addition of net imputed rent to disposable household income has a partial equalising effect on the distribution of household income. This result reflects that, for many home owners in lower income ranges the family home that they own is the largest asset held by the household, and the net imputed rent income from that asset is a relatively large proportion of the households' incomes. In higher income ranges the net imputed rent income is a relatively smaller proportion of the households' incomes. This equalising effect of accounting for net imputed rent in income analysis is illustrated in the following frequency distribution graphs, tables and discussion of a range of distribution measures.

Table 5.3 includes a range of measures of the distribution of household income. These measures are discussed in Appendix 1 of Household and Income Distribution, Australia, 2005-06 (cat. no. 6523.0).

5.3 Equivalised disposable household income distribution, 2003-04 and 2005-06
			2003-04		2005-06
Indicator			Equivalised disposable household income	Adjusted equivalised disposable household income, incl. imputed rent	Equivalised disposable household income	Adjusted equivalised disposable household income, incl. imputed rent
Mean income per week
	Lowest quintile	$	226	267	255	298
	Second quintile	$	360	401	414	454
	Third quintile	$	493	525	565	597
	Fourth quintile	$	645	675	746	774
	Highest quintile	$	1 041	1 082	1 239	1 287
	All persons	$	553	590	644	682
	Second and third deciles	$	300	344	341	389
Median income per week		$	494	525	563	594
Income per week at top of selected percentiles
	10th (P10)	$	246	286	274	324
	20th (P20)	$	299	345	340	387
	30th (P30)	$	358	401	414	454
	40th (P40)	$	425	460	489	523
	50th (P50)	$	494	525	563	594
	60th (P60)	$	562	594	647	676
	70th (P70)	$	641	669	743	770
	80th (P80)	$	747	778	867	897
	90th (P90)	$	922	958	1 073	1 111
Income share
	Lowest quintile	%	8.2	9.0	7.9	8.7
	Second quintile	%	13.0	13.6	12.9	13.3
	Third quintile	%	17.8	17.8	17.6	17.5
	Fourth quintile	%	23.3	22.9	23.2	22.7
	Highest quintile	%	37.6	36.7	38.5	37.7
	All persons	%	100.0	100.0	100.0	100.0
	Second and third deciles	%	10.8	11.7	10.6	11.4
Ratio of income at top of selected income percentiles
	P90/P10	ratio	3.75	3.35	3.92	3.43
	P80/P20	ratio	2.50	2.25	2.55	2.32
	P80/P50	ratio	1.51	1.48	1.54	1.51
	P20/P50	ratio	0.61	0.66	0.60	0.65
Gini coefficient		no.	0.297	0.277	0.307	0.290
Number of households in sample		no.	11 361	11 361	9 961	9 961

The addition of net imputed rent saw a decrease in the Gini coefficient in both years, again indicating that the inclusion of net imputed rent in income results in a more equal distribution. For 2005-06, the Gini coefficient was 0.307 without net imputed rent, declining by 5.5% to 0.290 when net imputed rent was included in income. In 2003-04, the decrease in the Gini coefficient was 6.7%.

The importance of net imputed rent at the lower end of the income distribution can be seen when looking at changes in the income shares going to groups of people at different points in the distribution. In both years, when net imputed rent is added to income, the share of income for those in the lowest two quintiles increases as does the income share for those in the 'low income' group (i.e. the 20% of the population in the 2nd and 3rd income deciles). In comparison, the share of income in the top two income quintiles decreases, while the income share of those in the middle income quintile remains steady.

Table 5.4 indicates the extent to which the income ranking of individuals changes as a result of adding net imputed rent. Quintiles based on equivalised disposable household income (EDHI) are compared against quintiles based on adjusted equivalised disposable household income including imputed rent.

5.4 Comparison of income quintiles, with and without imputed rent, 2003-04 and 2005-06
		Equivalised disposable household income - quintile
ADJUSTED EDHI, INCL. IMPUTED RENT - QUINTILE		Lowest	Second	Third	Fourth	Highest	All persons
2003-04
Lowest	%	16.0	3.9	*0.1	-	-	20.0
Second	%	3.8	12.8	3.3	*0.1	-	20.0
Third	%	0.2	3.1	13.6	3.0	**0.1	20.0
Fourth	%	-	0.1	3.0	15.0	1.8	20.0
Highest	%	-	-	-	1.8	18.1	20.0
All persons	%	20.0	20.0	20.0	20.0	20.0	100.0
2005-06
Lowest	%	15.6	4.2	*0.1	-	-	20.0
Second	%	4.2	12.3	3.5	-	-	20.0
Third	%	0.2	3.3	13.5	3.0	-	20.0
Fourth	%	-	*0.1	2.8	15.0	1.9	20.0
Highest	%	-	-	**0.1	1.9	18.0	20.0
All persons	%	20.0	20.0	20.0	20.0	20.0	100.0
* estimate has a relative standard error of 25% to 50% and should be used with caution
** estimate has a relative standard error greater than 50% and is considered too unreliable for general use
- nil or rounded to zero (including null cells)

In total, about one quarter of people (24% of persons in 2003-04 and 26% in 2005-06) move between income quintiles when imputed rent is added to income. The biggest movement is seen in the second and third income quintiles. For example, in 2005-06, 3.4% of people moved from the second quintile to a higher quintile when net imputed rent was added to income and all persons re-ranked, and 4.2% moved from the second quintile to the lowest quintile. The smallest movement was seen in the highest income quintile, where only 2% of persons in both 2003-04 and 2005-06 moved to a lower income quintile.

LOW INCOME HOUSEHOLDS

The ABS practice of using the second and third income decile as one measure when describing the characteristics of low income households is based on analyses of their net wealth and expenditure levels that indicate that many of the households included in the lowest income decile are unlikely to be suffering extremely low levels of economic wellbeing.

In 2005-06, of the people in the lowest equivalised disposable household income decile, 22% move to the second decile, 8% move to the third decile, 2% to the fourth decile and 1% to the fifth decile after adjusting for imputed rent and re-ranking.

This large movement of people re-ranked out of the lowest income decile results in a significant change in the characteristics of households in the re-ranked lowest income decile. For example:

• the mean age of the household reference person drops from 58 to 49 years;
• mean net worth falls from $353,000 to $245,000;
• the proportion of households that own their home without a mortgage drops from 46% to 20%; and
• the proportion of renters increases from 37% to 54%.