What’s driving this fall?
Why is the number of property investors in Australia falling?
Read the papers and it still feels like property investment is the only game in town, but the truth is, property investors are starting to sell up.
It is true that over the past 40-odd years there was an explosion in the number of property investors.
The share of taxpayers with at least one investment property quadrupled from just 5% in 1980, to 21% in 2014 – according to the latest analysis from the ATO.
But that 21% figure in 2014 represented the peak. History will regard that year as ‘peak property investor.”
Since then, the proportion of taxpayers declaring rental income has been falling gradually, hitting a 12-year low of 19.4 per cent in 2022.
Even the absolute number of property investors is falling, dropping to 2.29 million in 2021-22 from a peak of 2.39 million in 2019-20.
So the big question is why?
And should you be nervous? Is it like when you’re out the back of the breakers and you notice that everyone else is getting out of the water? Do they know something that you don’t?
I’m afraid the truth is probably not that dramatic.
Partly it’s regulation. Partly it’s demographics.
Grattan Institute housing expert Brendan Coates reckons that tougher lending rules imposed by the Australian Prudential Regulation Authority in 2014 kicked the trend off.
With the housing market looking a bit frothy, APRA told banks in December 2014 to keep growth in loans to property investors below 10 per cent a year. Property price growth soon recovered, and so the APRA followed up with a new edict in March 2017, forcing banks to make sure that interest-only loans were no more than 30 per cent of all new loans issued.
All of this threw a bucket of water on investors. The share of new home loans going to investors rather than owner-occupiers declined from about 45 per cent in 2014 to about 30 per cent by the time both measures were removed in 2018.
So that’s probably part of the story.
But the other story here is demographics.
Right now, Boomers, born between 1946 and 1965, are Australia’s most avid investors.
As the above chart shows, they got in early, and stayed in for most of their working lives.
And even though they’ve retired, surveys suggest that they’re hanging on to their properties as part of their retirement portfolio.
But they won’t hang on to them forever.
At some point, they’ll want to sell down their portfolios to fund their retirement.
And my guess is that this process has already started.
And with owner-occupiers outgunning investors in recent years, we’re seeing a bit of a fall in the number of investors in the market.
So this is what’s driving it. Regulation and demographics.
But with the regulation mothballed, and Boomers starting to sell up, that’s opening a door for a younger generation of investors.
Their time has come.
DB