You could be mistaken for thinking we are becoming a nation of haves and have nots, with an ever growing divide separating our population into rich property investors on one side, and cash-strapped renters on the other.
The presumption that all investors are “greedy landlords” runs rampant, and there seems to be a real resentment against property investors. But is this negative sentiment justified?
Here’s the real state of play when it comes to Australian property investors – you might just be surprised!
Greedy landlords… or everyday investors?
“Landlords are greedy and they’re driving up property prices!”
This is a common refrain amongst the younger generations, particularly Millennials trying desperately to save for their own home while playing catch-up with the booming property market. Many of them blame the current affordability crisis on property investors, believing there’s a secret society of cashed-up Baby Boomers laughing all the way to the bank, thanks to their monthly rental payments. However, this couldn’t be further from the truth.
In 2016, CoreLogic reported that investors owned approximately 27 per cent of all Australian dwellings, and 24 per cent of the associated wealth. That amounts to an estimated 2.6 million dwellings, at a rate of 1.28 properties per investor. The properties investors own tend to be skewed heavily towards the lower end of the market, with 53.4 per cent of investment properties valued at under $500,000 at the time of the report, and landlords owning almost 60 per cent of the unit stock in Victoria and South Australia.
In fact, across all the capital cities, between 58 and 65 per cent of all investment properties were valued at less than the citywide median property price. Only 10.5 per cent of investor-owned dwellings were valued at over $1 million in 2016, compared to 14.9 per cent of owner-occupied dwellings.
Private landlords provide the vast majority of rental accommodation across the country, and fund the construction of new dwellings to meet our ever-growing population. Since 1984, the public sector has been responsible for just 5 per cent of all new dwellings constructed, leaving investors to pick up the shortfall.
The big investor fallacy
It’s also a fallacy that landlords are sitting back, getting rich off the sweat of their tenants.
In fact, in 2013/14, only 38.2 per cent of all landlords in Australia claimed a net profit on their tax return – the remaining 61.8 per cent reported a net loss, with the average loss amounting to $8722. This is obviously driven by negative gearing provisions, so a large portion of this loss relates to depreciation, which is not a cash item.
Nevertheless, even if some of these properties are cash flow positive, the majority won’t be massively so.
Property is also a heavily taxed asset class, with capital gains tax costing Australian investors almost $3.5 billion during the 2015 calendar year. They’re not high-rolling fat cats either - it’s investors who fall into the income bracket of $60,000 to $80,000 who are most likely to claim a net rental loss on their taxes.
So, when you remove emotion from the equation and look at the facts, it seems that the average Aussie investor is nowhere near as wealthy as most tenants think.
In other words, the typical Aussie landlord isn’t too different from many of us!