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Australian Real Estate Heroes And Villains

Australian Real Estate Heroes And Villains
June 21, 2022 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

A handful of property booms, four recessions, long periods of high inflation, a GFC, technological advancements, a domestic credit squeeze, a global health pandemic and plenty more… Amidst much change over the last 50-years, one thing which remained constant throughout is that 3 of every 10 dwellings in Australia were rented.

As of December 2021, there were 10.7 million residential dwellings in Australia valued at $10 trillion.

An estimated 3.3 million were for rental purposes (noting some inconsistencies among data from ABS, ATO and Census).

70 percent of dwellings are owner-occupied.

The remaining 30 percent represent Australia’s rental pool. Governments own just 3 percent of the national real estate stock, while 27 percent are rental properties funded by the private sector.

In other words, the housing requirements of the 7 million Australians who live in rented accommodation are almost entirely supplied by everyday Aussie property investors.

This short report contains a statistical summary of the critical role that property investors play in society. The contents of this report make it abundantly clear why Australia needs an increase in investor participation.

 

Everyday Aussie Demographic

8.8 percent of Australia’s total population (or 2.22 million people) are property investors.

90 percent of investors own just 1 or 2 properties.

 

Related article: Smartest property investors have no borders

 

Only 20,434 property investors own 6 or more properties. That’s less than 0.1 percent of the total population.

People invest because they recognise that superannuation and aged pensions will be insufficient to support their preferred lifestyle later in life. The alternative to investing is unappealing.

According to the ATO, 72.5 percent of investors earn less than $100,000 per annum. Hence the ‘everyday Aussie’ description.

The tall-poppy criticism which a segment of society hurl at property investors is little more than brattish behaviour.

There is no dominant age demographic for investors.

In fact, 107,793 Australians who are younger than 30 years of age have already become a property investor.

The younger one is when they set goals, exercise financial discipline and take action the more one will accomplish.

20.8 percent of Australia’s 2.22 million investors are 30-39yo, 24.8 percent are 40-49yo, 25.9 percent are 50-59yo and 23.8 percent are 60yo or older.

 

Backbone Of National Housing

Over the 10-years ending December 2021, a whopping 1,039,500 Australians became first home buyers. For a country with 10.7 million dwellings in total, that is an outstanding result over a decade.

That said, there will never be a shortage of gum-flappers with bad attitudes and poor knowledge that choose to direct homeownership challenges at property investors.

The wide variety of reasons outlined below explain why 1 in 3 households live in rented accommodation.

According to the latest data from ABS, 12 percent of current rented dwellings (or 365,200 households) are to people aged 65 or more. Hmm.

The biggest age demographic for renters is understandably 25-34yo (28 percent). It takes time for one to establish a career, to acquire financial responsibility, develop a stable relationship and save a deposit.

Interestingly, 25 percent of rented households are to tenants aged 35-44yo rent while 27 percent are aged 45-64yo.

Over the 77-years since World War 2, the portion of Australian households which were rented has consistently hovered between 23 and 32 percent. So, over 4-consecutive generations, 1 in 3 households have been rented.

The purple columns in the chart above illustrates that government-funded rental accommodation has always been a significantly smaller portion than dwellings funded by property investors.

Governments struggle funding essential infrastructure, let alone large volumes of dwellings for rental purposes.

ABS data confirms that, despite the national population increasing by 7.3 million people over the 15-years to June 2020, the volume of residential dwellings with a government landlord declined from 360,063 (5.5 percent of total households) to 282,241 (2.9 percent).

Over the same 15-year period, the private rental pool increased from 1.2 million to 2.55 million (26.2 percent of all households).

The combined value of residential dwelling stock that Australia’s 7 million tenant population reside in is approximately $2 trillion. So, the actions of everyday Aussie property investors frees up valuable government funds for other important purposes.

 

Here’s how Propertyology helps property investors

 

Approximately 107,000 rental properties across Australia (a mere 2 percent of the total rental pool) are in the short-term rental pool with platforms such as Air BNB and Stayz. These dwellings play a critical role for ensuring there is sufficient quantity and variety of accommodation when people travel for work or pleasure.

75 percent of rental properties are managed by professionals.

In 2018-19, property investors paid $3.08 billion in property management fees, thereby funding over 40,000 direct jobs nationally.

A property investor’s pursuit of financial independence also reduces the heavy burden that funding aged pensions places on government finances. Only 23 percent of Australians aged 65+ are financially independent, costing Australian taxpayers $50 billion per year on aged pensions.

The aforementioned collection of large and very important numbers is good reason for everyday property investors to be acknowledged as role models, as opposed to portraying them as villains.

Taxation Facts Versus Fiction

In addition to the normal tax payable on salaried earnings, property investors collectively pay more than $10 billion in property taxes each year.

For perspective, the money paid by property investors for property taxes each year would cover the cost of constructing 15 major hospitals. Heroes, not villains.

  • Stamp duty (state governments): with investors generally buying 3 out of every 10 dwellings purchased each year, property investors paid a significant portion of the $24 billion in stamp duty collected in 2020-21.
  • Land tax (state governments): $1.61 billion from 835,813 dwellings in 2018-19.
  • Council rates (local governments): $3.76 billion in 2018-19.

The federal government also collects $billions each year in capital gains tax, payable when an investor sells a property for more than the purchase price (a tax that owner-occupiers do not pay).

Then there’s negative gearing – a topic that has always been associated with a significant lack of public understanding.

The latest release of ATO data confirms that 65 percent of rental properties produced an annual profit and 35 percent had a net loss (rental incomes were less than investment expenses).

Property investors paid tax on the $9.8 billion combined profit from the cash flow positive properties.

Conversely, owners of the loss producing properties offset the $12.9 billion in combined losses against other taxable incomes.

 

Rise of the RentVestor

Rather than moaning and growing about challenges with being able to afford to buy a property that one wants to live in, a growing number of people are thinking laterally and enjoying the advantages of being a RentVestor.

According to ABS, there were 235,900 rented dwellings in June 2020 wherein the occupant owned residential property that they rented out (rentvestors).

While there are pros and cons with every strategy, RentVesting often proves to be the most attractive to many people who properly explore all options.

Rental Pool Is Dry

Over the last 10-years, Australia’s population increased by 3.4 million people and there are 1.72 million more dwellings.

But participation rates of property investors have been grossly insufficient for the increased demand for rental accommodation.

The series of poor policies listed in this next graphic created the large vacuum below the dotted line in the last 5-years.

Insufficient participation by investors for such a prolonged period of time means Australia’s rental pool is not large enough.

The combined volume of dwellings advertised for rent in Sydney-Melbourne in April 2022 was 25,413, only marginally more than 20,536 dwellings 10-years earlier.

The other 6-capital cities produced a reduction from 9,514 to 5,814. Ouch.

The increase in population (3.4 million over 10-years) requires more rental accommodation, not less.

Regional Australia has the biggest shortfall of rental accommodation. Ten (10) years ago there were 20,832 dwellings advertised for rent, whereas it is currently a piddly 8,363.

The dire shortage of accommodation means that the price of asking rents has increased by between $5,000 and $10,000 per annum in dozens of locations across Australia.

Rental supply has tightened so much that there are widespread reports of wannabe tenants with stable incomes and a good rental history yet have succumbed to living in caravans and tents.

Under its Housing Australia Future Fund, the federal Labor government recently committed to adding 30,000 (very basic) dwellings over 5-years to the national rental pool.

Over a typical 5-year period, Australia requires 900,000 extra dwellings to house an extra 1.6 million people, with the national rental pool requiring 270,000 of those.

The extra 30,000 rental properties to be progressively added by the government over the next 5-years represents a mere morsel (11 percent) of what Australia requires, and it will cost taxpayers $10 billion.

Now what?

Until property investors are supported, the rental supply crisis will get worse, not better.

 

Narrative And Attitudes Must Change

The statistical evidence in this report suggests that the average Aussie property investor is someone between the age of 25 and 75. They own just one investment, that property is probably cash flow neutral and their personal income is below $100,000 per year.

They are people who elect to not live in the moment and spend everything that they earn. Instead, they choose to make some financial sacrifices during their 40-ish years in the workforce to improve their position for those post-work years.

Investing is a discretionary action which requires supportive and stable government policy.

Public criticism along with policies which restrict investor participation are poor community values to set. And they place unsustainable pressure on the taxpayer purse.

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