Tax stats unmask investors

The 2008-09 Australian Taxation Office (ATO) Taxation Statistics were released yesterday (available here), and the data on property investment was very interesting.

First, the number of property investors reporting to the ATO fell by 34,000 or 2% from the previous year (see below chart).

Second, after rising steadily since 1999-00, the overall value of net rental losses fell by $2.1 billion or 24% from the previous year (see below chart).

Finally, property investment appears to be the investment of choice for middle-income Australians, with 78% of all investment properties held by individuals earning less than $80,000 per annum. In addition, 66% of investment properties were negatively geared in 2008-09, down slightly from 70% in the previous year (see below chart).

One thing to note is that the data for 2008-09 is likely to have been distorted by the surge of first home buying over the 2008-09 period, following the Government’s temporary increase to the first home owners’ grant (FHOG) in response to the Global Financial Crisis.

The spike in first home buyer activity over 2008-09 is clearly evident by the below charts from RP Data. First, consider the number of first home buyer finance commitments:

Now, consider the percentage of first home buyer commitments.

Many of the increased number of first home buyers in 2008-09 would likely have: (1) purchased pre-existing dwellings from investors; or (2) displaced would-be investors from buying an investment property. As such, the investors’ share of the property market over 2008-09 would likely have fallen just as the first home buyers’ share rose.

Also, the amount of rental losses would have been reduced by the sharp fall in mortgage interest rates, which fell from 9.45% in June 2008 to 5.8% in June 2009.

It will be interesting to see whether next year’s ATO Taxation Statistics show an increase in property investment and higher rental losses for the 2009-10 period, particularly in light of the large drop-off in first home buyers and the rise in mortgage interest rates.

Cheers Leith

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Comments

  1. I would also like to see stats on the ages of the investors over the revious year and year prior … ie are the positive ones being sold by the elderly (retiring and taking the money. I think the loss might have been lower as the interest rates may have been lower? on average? no looks like the ATO’s letters to all rental owners threating audits worked

  2. Very interesting stats Leith, thanks for sharing.

    That 3rd chart (investment holdings by income) shows just how ingrained property investment is across all income ranges.

    I would not be surprised to see the total number of rental property investors fall back to around the 1.5m mark or lower as they realise that capital growth is unlikely to continue outpacing the costs of negative gearing over the short to medium term.

    That’s a lot more properties to come onto the market when we already have a rising inventory 50% larger than the same time last year… and there are still those out there claiming we will see prices plateau rather than fall… give them some medication.

  3. Great work Leith. The third chart does tell an interesting story. Those negatively geared properties owned by people with incomes less than $34,000 (and even $6,000) are a worry. Although you might have to factor in the impact of a second earner supporting their household.

    Still, interesting times indeed.

  4. Very interesting stats Leith. Suspect that 2009/10 will see a shift back to bigger losses on negatively geared properties as first home buyers retreated and higher interest rates cut in. Note that the number of negatively geared investors was 1,114,964, 73% of whom own only one rental property. This is less than 8% of all Australians enrolled and eligible to vote in the next Federal election. Assuming roughly half of these would not normally vote for the government anyway, the number of votes “at risk” is less than 4%. Can’t help but feel there are potentially more (votes)to gain than lose for the party that has the balls to get serious about housing affordability and make some long overdue legislative changes. Both major parties are seriously underestimating the swing in public opinion against investors and their up until now, “untouchable” tax free kicks.

      • FWIW I agree with Schillers. If housing affordability continues to gain traction as an issue the boomers might not have enough votes to kill it.

        The Greens could also be used as the stalking horse on this to test out the potential backlash before the major parties commit either way.

    • I think you may have more than 1,114,964 people with vested interests in investment property and those people vote too. IE a husband may claim the tax, but if the legislation also effects the families income (IE wife and kids) do you think the wife would vote as well?

  5. the question is how much do property prices need to fall b4 these negatively geared “investers” become feather dusters?

    With hyper inflation in food, gas, bills etc i see the housing ponzi in harms way.

  6. Love the chart of property investment by income group, very interesting to see that the most wealthy steer clear of property.

    It soesn’t seem to match very well with the RBA’s statement that “75% of all household debt in Australia is held by the top two-fifths of income earners”. The top 2/5 must be holding a hell of a lot of debt in their PPOR.

  7. How is “income group” worked out? i.e. is this the income reported to ATO after deductions? Including negative gearing?

    i.e. I earn $200k per year but have 10 investment properties that are geared such that I only pay tax on an $80k income. Is my income in that chart 80k or 200k?