The debt spiral is back and it is getting bigger for investors in the financial sector.
Read moreA new report by the Institute of Directors says the average net worth of people in the finance sector has increased by almost $20,000 since the year 2000, to $16,600.
In fact, the total wealth of people with financial assets is now $1.5 trillion.
The report says the rise in the wealth of the finance industry has been driven by a surge in house prices, which have been soaring since the financial crisis.
It says a “very significant” proportion of this increase in net worth has gone to the wealthiest 5 per cent of households.
“House prices are the key driver of wealth in the Australian financial sector,” said Institute of Boards CEO, Professor Tim Flannery.
“[But] it is not the only driver.”
This year, the average price of a home in Australia has jumped by 12 per cent, to more than $1 million.
It is also the most expensive year ever for house prices in Australia, with a median price of $1,831,000.
According to the Institute, the increase in the median wealth of Australians with assets in the $1-million range has been the biggest single contributor to the financial services sector’s increase in wealth.
Professor Flannery says this growth has been largely driven by house prices.
In the past decade, house prices have increased by more than 30 per cent while average net wealth has increased more than 70 per cent.
That means the average household now owns more than a third of the wealth in Australia.
In 2017, there were 8.4 million Australians with $1m or more of assets, up from 6.2 million in 2017, according to the Australian Bureau of Statistics.
The Institute says the increase is partly due to the “huge” rise in interest rates, with rates on loans increasing by more then 10 per cent over the past 12 months.
This means borrowers are able to borrow more money at a faster rate than they could in previous years, and there is more room to borrow in the economy.
Some of the most significant changes have been in the housing market.
Over the past year, house sales have soared by nearly 40 per cent in Australia and a record 40 per-cent increase has been recorded in Sydney.
For the first time, Sydney now has more than double the number of rental properties than Sydney, the Institute says.
While Sydney is not experiencing a house price bubble, the median home price is more than two times higher than Sydney.
The average home price in Melbourne has also risen, but at a much slower rate.
But the report warns that Sydney is experiencing a bubble in the banking sector.
Many banks have been losing money due to bad loans, and in 2017 only 2 per cent were in surplus, down from 7 per cent the previous year.
However, the report says it is likely that this may be temporary, as the banks have to make further structural changes to improve their performance.
Australia’s banking sector has been hit particularly hard by the global economic downturn, as many of its biggest lenders are in the process of restructuring.
Most of these banks have already seen their capital requirements reduced and some have been forced to seek alternative financing, with the Institute warning that some of these lenders may not be able to survive.
To help the banking system cope, the Federal Government has introduced a series of measures to support the banking industry, including: more mortgage insurance; the creation of new credit lines; and a banking holiday for Australians who need extra help to pay off their debts.
Mr Flannery told the ABC’s AM program that the “recovery in financial markets is very much a positive thing”.
“In many ways, it is an upside from the current crisis,” he said.
He said the government has been “very supportive of the banks”.
“I think they are going to be in a very good position for a while to be able go back to the banks, but there is a lot of work to do, particularly on the banking side,” he told AM.
What the economists say…
The Australian Institute of Bankers says the financial industry has “made significant progress” since the Great Recession and the Institute is calling for more reforms.
“We are concerned that, while the financial system continues to recover from the Great Depression, it will take a longer time to fully recover,” the bank says.
The Financial Stability Authority of Australia (FSAA) says Australia’s financial sector remains vulnerable to an extended global financial and economic slowdown. “
The financial sector will likely continue to suffer the impacts of the global financial crisis, as it continues to shift its business away from its traditional home in the developed world.”
The Financial Stability Authority of Australia (FSAA) says Australia’s financial sector remains vulnerable to an extended global financial and economic slowdown.
Last week, it warned that Australia could see “severe and significant” losses