If investors are evil, explain this…
I know I’m pissing in the wind, but here’s what really happening in Australian property.
One of the interesting themes that does the rounds is that the reason that house prices have risen so much and therefore the reason why our poor children are sleeping in cardboard boxes under the railway tracks, is because of investors.
Greedy investors have destroyed the market, destroyed affordability and destroyed the Australian dream.
A lot of this goes unchallenged. I find that interesting. I think what it shows is that we still have a bit of cultural cringe around making money.
I think a lot of investors do feel a little bit guilty that they’ve made good money in recent years. That somehow, they must have done something at least a little bit naughty.
Nevermind that the CEO of any major Australian bank takes home a small African nation’s GDP worth of stock options each year, or that Paris Hilton gets paid millions of dollars to rock up to a party and do balloon animals.
No, I made 10% on a property I spent months researching. What a bad boy am I.
It is just one of those things, and as funny as it is, I’m still happy that we don’t live somewhere as money and status conscious and shameless as the US.
So it is what it is.
The thing that I find interesting about this stylised fact, is that there isn’t a whole lot of data to support it.
It is true that we saw the investor share of mortgage finance increase in recent years, especially in NSW and Victoria.
But when APRA started putting a brake on investor lending, we found out that the processes that gathered info on whether the loan was OO or investor were pretty loose.
It didn’t really matter, so the banks didn’t stress all that much about recording whether someone was an investor or a first home owner.
And there were some creative work-arounds that allowed first time buyers to stretch a little further if they said they were buying it as an investment property – by saying they expected $x rental income, and using the default bank assumptions about their own rental expenses, and squeezing out a couple of extra hundred dollars in servicing.
And so some chunk of investor borrowing might actually have been owner-occupier.
Of course, now it’s flipped the other way. Investor mortgages are attracting a premium, and so some investors are actually finding it better to declare as owner-occupier if they can.
So who knows what the truth of it is.
The best guess is probably the ABS survey of Household wealth. Corelogic did some interesting analysis on it the other day.
What they found is that yes, there has been an increasing in the number of households that are rental properties.
It’s up from around 26% of households in 1994, to about 30% in 2016.
That’s not a HUGE increase in 22 years, and note that it’s fallen in the most recent observation. So the narrative of investors ransacking our children’s future doesn’t really bear out here.
But what’s interesting is when they look at owner occupiers.
The percent of households that own outright has been on a steady downward trend – from 44% in 1996 to just over 30% in 2016.
That’s a much bigger fall than the rise we’ve seen in rental properties.
At the same time, the share of households with a mortgage has risen steadily, up from 27% in 1996 to 37% in 2016.
Again, making the rise in rentals seem small.
So the real story here is the fall in the number of properties in Australia owned outright.
Is that about evil investors buying all the properties? Hardly. It’s about more households having a mortgage, and presumably, for longer.
What’s driving that? Price rises. As prices rise, it takes longer to pay off a mortgage (since prices have risen much faster than wages).
What’s driving price gains? Record low interest rates, strong population growth, with a sprinkle of Chinese money.
So this isn’t a story about first home buyers doing it tougher. It’s about everyone doing it tougher. It’s about everybody having a mortgage and having it for longer.
“Evil” investors have nothing to do with it.
Not that I imagine that’s the last we’ll hear of it…
Why does the evil investor story have so much appeal?