Investor Market Share

One of the greatest misconceptions in the housing market is that property investors are the people who cause property prices to rise.

The evidence confirms that this is a major piece of misinformation but some sections of politics and news media love to perpetuate this fiction.

And, as an extension, use it as justification for advocating the end to negative gearing.

Some people appear to believe that eliminating negative gearing tax benefits will fix all the problems in the property market: rising prices, housing affordability generally, the shortage of new homes, the rental crisis, pretty much everything.

And, like so much of the debate about housing issues, it’s patently false and nothing more than an expression of the politics of envy.

So let’s look at the reality of who has influence in our housing markets and in particular in causing prices to rise over time.

My view over time, supported by the research evidence, is that the largest and most powerful cohort in the residential real estate industry comprises home buyers other than first-home buyers – i.e. owner-occupiers buying their next home, whether up-grading or downsizing.

They are the largest group of buyers numerically, they have the greatest market share and they have the greatest borrowing capacity and ability to pay higher prices than any other group in the market – they’re older, have higher incomes, have equity in their existing homes, they’re aspirational and they have borrowing capacity, far more so than first-home buyers or the average investor.

The latest edition of the NAB Residential Property Survey tends to confirm that view.

The report states that buying activity in the established property market is, and I quote, “dominated by owner-occupiers net of FHBs” – which means home buyers other than first-home buyers.

The NAB report says they comprise 44% of buyers in the Australian housing market and comments: “These buyers account for the lion’s share of established home sales in all states.”

The next biggest buyer cohort is first-home buyers, who comprise 34% of buyers in the market.

Australian investors are just 18% of buyers and foreign investors around 4%.

So the people constantly blamed for prices rising and causing poor housing affordability, Australian property investors, have a market share of just 18%.

More than three-quarters of buyers out there in the market are home-buyers – and they have massive advantages over investor buyers.

They have lower interest rates, they have lower levels of stamp duty, they have lower council rates and lower rates of insurance, and they don’t have to pay land tax or capital gains tax.

If they’re first-home buyers they also receive government grants and other assistance measures, including stamp duty concessions.

The only advantage that property investors can access is negative gearing, which around half of property investors can use to reduce their tax.

The research shows that the typical property investor is young, on an income below $100,000 and restricted on what they can pay by their borrowing capacity, which is less than a home buyer on the same income because the investor has to pay higher interest rates and stamp duty.

What many politicians and journalists want us to believe is that a cohort which is just 18% of the buyers in the market and restricted in their borrowing capacity by numerous factors somehow overpowers the 78% of buyers who are owner-occupiers - and therefore, apparently single-handedly cause house prices to rise.

It simply isn’t so.

The myth of the advantaged and privileged property investor is the greatest lie in real estate.