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4102.0 - Australian Social Trends, 1999  
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Contents >> Housing >> Housing Stock: Rental investors

Housing Stock: Rental investors

In 1997, over half a million income units comprising couples, lone parents or individuals, were investors in residential rental property. Just over three quarters had invested in only one rental property.

The private rental market provides housing for approximately one fifth of Australian households (21%). Householders, as well as businesses and non-profit institutions, invest in private rental housing. Estimates from the 1996-97 Survey of Income and Housing Costs indicated that householders provided approximately half the rental housing for those who rented in the private market.

People rent for many reasons. For example, they may choose to rent because they prefer to keep their housing options open, or they may be forced to rent because they cannot afford to buy a home. People who rent may be either in the private or the public rental housing market.

Between 1988 and 1997, the apparent demand for private rental housing increased. The numbers of households renting privately grew from 959,100 in 1988 to 1,448,800 in 1997 (from 17% to 21% of all households) (see Australian Social Trends 1999, Housing - National summary tables).


Residential rental properties

This review uses data from both the July 1993 and June 1997 Household Investors in Rental Dwellings surveys, and relates only to people aged 18 years or more. Data from the 1993 survey is available at the person level only, whereas the 1997 survey mainly collected information on investments by income unit. This change recognises that the benefits of income and rental property ownership are often shared between partners in couple families. Information on the characteristics of residential rental properties was also collected. Comparative figures for all income units were obtained from the 1996-97 Survey of Income and Housing Costs.

Dwelling units are the total number of units when multiple dwelling units such as blocks of flats are taken into account. That is, houses or flats etc. are regarded as one dwelling unit each, but a block of flats, containing for example, six flats, is counted as six dwelling units.

Residential rental properties are private dwellings for which rent was paid to the owner either directly or through an agent. These properties provide long-term accommodation and could be single dwelling units such as a separate house, or multiple dwelling units such as a block of flats. Respondents reported data on properties up to a maximum of three for one-parent and one-person income units and up to six for couple income units.

Income unit is one person, or a group of related people within a household, whose command over income is assumed to be shared.

Investor income units (also called investors) are those income units who in June 1997 owned, or owned a share in, a residential rental property.

PERSONS(a) OWNING RESIDENTIAL RENTAL PROPERTY, JULY 1993 AND JUNE 1997

1993
1997
Age group (years)
%
%

    18-34
22.6
19.4
    35-44
26.7
27.8
    45-54
27.3
31.6
    55-64
14.9
14.0
    65 and over
8.4
7.2
    Total
100.0
100.0

Sex
    Males
54.5
52.6
    Females
45.5
47.4
    Total
100.0
100.0

Person investors ('000)
752.1
889.9

Total population(a)
12,638.4
13,132.6

(a) Persons aged 18 years and over.

Source: Household Investors in Rental Dwellings, June 1997 (cat. no. 8711.0).


Rental investment trends
Investment in private rental housing has fluctuated over the last few decades (see Australian Social Trends 1995, Investment in residential rental property). However, between July 1993 and June 1997 there was an 18% increase in the number of rental investors - from 752,100 to 889,900. This represented an increase, from 6.0% to 6.8%, in the proportion of all people in private dwellings who had invested in residential rental properties.

The age and sex profile of individuals with investments in residential property in 1997 was similar to that in 1993; most investors were aged between 35 and 54 and slightly more men than women were investors. However, over the period there was a decrease in the proportion of all investors aged 18-34 years (from 23% to 19%) and in those aged 55 and over (from 23% to 21%).

INCOME UNITS WITH RESIDENTIAL PROPERTY, JUNE 1997

Couple income units
One person income units
All income units



No. of investors
Per cent investing(a)
No. of investors
Per cent investing(a)
No. of investors(b)
Per cent investing(a)
Age(c)
'000
%
'000
%
'000
%

18-34
61.5
6.7
49.0
2.4
113.4
3.6
35-44
128.9
11.8
21.9
5.2
155.5
9.1
45-54
144.8
15.0
27.1
7.0
177.6
12.3
55-64
73.5
11.8
13.9
4.0
88.1
9.0
65+
32.2
4.7
17.4
2.0
49.6
3.2
Total
440.9
10.3
129.3
3.2
584.2
6.6

(a) Investor income units as a proportion of all income units in group.
(b) Includes one-parent investor income units (14,000 income units).
(c) Age of reference person in income unit.

Source: Household Investors in Rental Dwellings, June 1997 (cat. no. 8711.0).


Investor income units
Investment decisions are often made by income units, such as both people in a couple, rather than individuals. The investments may also be shared with other income units (17% of investors owned their most recently acquired property in partnership with one or more other income units in June 1997).

In June 1997, 584,200 income units had an investment in at least one residential rental property (7% of all income units). Most were small investors, with just over three quarters (76%) owning or partly owning only one property.

Investment rates in residential property vary according to life-cycle stage. As might be expected, couples in their prime earning years were most likely to have such an investment. In 1997, income units in which the reference person was aged 45-54 were the group most likely to have a residential rental property (12%), especially if the income unit involved a couple (15%). More generally, couples were over three times as likely (10%) to have a residential rental property as one-person (3%) or lone-parent income units (3%).

Partly reflecting the concentration of investors among people of prime working age, investor income units had higher incomes than income units in general, and were more likely to have their main source of income from employment or business. In June 1997, the median gross weekly income of investor income units was $1,009 - more than twice the median of all income units ($486). Two thirds (65%) of investors received their main source of income from wages or salaries, and 18% from their own business or partnership. The corresponding proportions among all income units were 55% and 6% respectively, largely because a much higher proportion of the general population was dependent on government pensions and allowances (30% of all income units compared to 6% of investor income units).

Investors were also more likely to own their own home than the general population. In June 1997, more than three quarters (76%) of investors owned or were paying off their own home, nearly half of investors owning their own home outright (47%). In contrast, 54% of all income units owned or were paying off their own dwelling, and only 31% owned their dwelling without a mortgage.

AMOUNT AND PRINCIPAL SOURCE OF CASH INCOME, JUNE 1997

Investor income units
All income units(a)


One-person
Couple
All(a)
One-person
Couple
All(b)
Principal source of income
%
%
%
%
%
%

    Wage or salary
67.0
64.6
64.9
51.0
61.2
54.7
    Own business or partnership income
11.4
19.9
17.8
3.2
9.1
5.9
    Government pensions and allowances
6.3
4.8
5.5
35.1
21.4
30.2
    Other income
15.3
10.5
11.7
7.8
7.2
7.3
All sources
100.0
100.0
100.0
100.0
100.0
100.0

$
$
$
$
$
$
Median gross weekly income
666
1,162
1,009
322
766
486

(a) Includes one-parent investor income units (14,000 income units).
(b) Includes one-parent income units.

Source: Household Investors in Rental Dwellings, June 1997 (cat. no. 8711.0); Income Distribution, Australia, 1996-97 (cat. no. 6523.0).


Buying and selling
Consistent with increases in demand for, and investment in, private rental housing, in June 1997 there were more than twice as many income units intending to buy a rental property in the next two years (215,500) than intending to sell (113,500). Over one quarter (26%) of those intending to buy already owned a residential rental property.

For just over one quarter of investors, their most recently acquired rental property was a home they had previously lived in (26%). This was particularly so for those aged 18-34 years with sole ownership of their property (42%). The majority of investors obtained their most recently acquired rental property by purchasing it with a loan (59%). Very few had purchased their rental property outright (10%) although those aged 65 and over with sole ownership were more likely to have done so (39%). This group was also more likely to have received the property as an inheritance (13%) than the average rental property investor (4%).

The most common reasons given by income units intending to invest were the desire for a long-term investment (80%) and for the taxation benefits to be gained by negative gearing (23%). In contrast, lower proportions of existing investors gave these as reasons (66% and 16%). Existing investors were more likely to cite possible future home (15%) and rental income (15%) as their reasons than intending investors (12% and 9% respectively).

The most common reason reported by those who had already sold (34%) their residential rental property and those intending to sell (22%) was that they needed the funds for family or business purposes. Similar proportions of both groups (16% and 14% respectively) also reported that they had sold or would sell because the property caused them too much work and worry.

TENURE TYPE OF OWN HOME, JUNE 1997

Investor income units(a)
All income units
Tenure type
%
%

Owner(b)
75.9
54.3
    Without a mortgage
28.9
23.1
    With a mortgage
47.0
31.2
Renter(c)
17.4
35.2
Rent free
5.9
7.6
Total(d)
100.0
100.0

Total(d) ('000)
584.2
8,965.3

(a) Investors in private residential rental property.
(b) Includes owners with and without a mortgage.
(c) Includes public renters.
(d) Includes other tenure e.g. being purchased under a rent/buy scheme or occupied under life tenure.

Source: Household Investors in Rental Dwellings, June 1997 (cat. no. 8711.0); and unpublished data, Rental Investors Survey, June 1997.


Type of investment property
People have different reasons for buying a rental property than for buying their home, and are therefore likely to choose different types of property. Separate houses were the most common type of private residential dwelling for both groups, followed by units or flats. However, investors were less likely to have acquired a separate house (56% of all rental dwellings in 1997) than were all householders living in a separate house (80% of all private dwellings). Conversely, 33% of rental dwellings were units or flats (either single flats or within a whole block as a number of flats) compared to 12% of private dwellings. One reason for this may be that units or flats tend to be cheaper than separate houses (see Australian Social Trends 1998, Wealth in the family home).

Investor income units were more likely to invest in single flats or units rather than blocks of flats. Of all residential rental properties owned by investor units, 22% were single flats or units and 4% were blocks of flats. For their most recently acquired property, rental investors with sole ownership of this property were somewhat less likely to invest in blocks of flats (3%) than investors with shared ownership (7%), probably because of the greater cost involved.


TYPE OF DWELLING(a), JUNE 1997
(a) Comprises total number of individual residential dwellings, including all units/flats within a block of units/flats.
(b) Comprises semi-detached/row or terrace houses/townhouses.

Source: Unpublished data, Rental Investors Survey, June 1997; and unpublished data, Survey of Income and Housing Costs, 1996-97.
Statistical sub-divisions

Statistical sub-divisions (SSD) are defined as socially and economically homogeneous regions characterised by identifiable links between the inhabitants. In July 1998, there were 194 SSDs in Australia, ranging from 45 in Victoria to 8 in the Australian Capital Territory.


Location of investment property
Potential rental properties are likely to be easier to select, and then manage, when situated close by. In 1997, nearly half of all investment properties were located near the homes of investors (48% in the same statistical sub-division), and 88% were located in the same State or Territory. The same proportions of all dwellings and investment dwellings were located in capital cities (63%), although there was some variation between the States and Territories.

Naturally, investors are more likely to buy a rental property in an area where there are many people wanting to rent. The inner areas of capital cities, in particular, have higher proportions of young singles or childless couples, who are traditionally more mobile and therefore more likely to rent (see Australian Social Trends 1999, Inner city residential development). In contrast, rural areas have higher rates of home ownership than urban areas, and therefore a smaller potential rental market (see Australian Social Trends 1998, Rural families). Therefore, it might be expected that a higher proportion of rental dwellings than all private dwellings would be located in the capital cities. However, this was not true in every State. For example, there were similar proportions of rental investment dwellings in Sydney (60%) and Brisbane (44%) as there were of all private dwellings (61% and 44% respectively). The relatively high proportions of people in New South Wales and Queensland living in coastal towns and cities may help to account for this difference.1

LOCATION OF RESIDENTIAL DWELLINGS, JUNE 1997

Investment dwellings(a)
All residential dwellings


Total
Capital cities
% in Capital cities(b)
Total
Capital cities
% in Capital cities(b)
'000
'000
%
'000
'000
%

New South Wales
196.6
117.7
59.9
2,318.2
1,407.3
60.7
Victoria
170.3
128.4
75.4
1,702.3
1,213.1
71.3
Queensland
210.2
92.0
43.8
1,255.0
549.5
43.8
South Australia
66.3
51.5
77.7
589.6
441.1
74.8
Western Australia
79.2
61.2
77.3
674.5
493.1
73.1
Tasmania
18.9
8.5
45.0
185.7
75.3
40.5
Northern Territory(c)
8.1
n.a.
n.a.
485.8
n.a.
n.a.
Australian Capital Territory
16.3
16.3
100.0
115.5
115.5
100.0
Australia
765.9
480.9
62.8
6,889.3
4,326.0
62.8

(a) Private residential rental dwellings - respondents reported details on a maximum of three rental properties.
(b) Proportion of total private residential dwellings which are in capital city statistical divisions.
(c) Available data refers to mainly urban areas.

Source: Household Investors in Rental Dwellings, June 1997 (cat. no. 8711.0); and unpublished data, Survey of Income and Housing Costs, 1996-97.


Value of investment property
The value of rental properties differed from that of owner-occupied properties. In 1997, the estimated median value of investment properties in Australia was $125,000. This was lower than the estimated median value of owner-occupied dwellings ($141,000 in 1995-96)2, partly because a greater proportion of rental properties were flats and units (33% in 1997) than were all owner-occupied dwellings (5% in 1995-96). Property values vary considerably according to their location. In 1997, the median value of rental properties in all capital cities was $133,000 compared to $107,000 outside the capital cities. The highest median value was in Sydney ($192,000), reflecting its higher real estate prices generally. Hobart had the lowest median value of $97,000.

RESIDENTIAL RENTAL PROPERTIES IN CAPITAL CITIES(a), JUNE 1997

Median value(b)
Median weekly rent(c)
Gross rate of return(d)
$'000
$
%

Sydney
192
197
5.9
Melbourne
120
153
6.9
Brisbane
127
158
6.7
Adelaide
98
136
7.5
Perth
127
132
6.1
Hobart
97
133
7.6
Canberra
137
173
7.0
    All capital cities(e)
133
161
6.6
    Rest of State
107
141
7.3
Australia
125
154
6.8

(a) Respondents provided data on a maximum of three properties.
(b) Current market value of the property and its land as estimated and reported by respondent.
(c) Median weekly rent charged for the property regardless of whether the property was occupied or vacant.
(d) Gross annual rent (i.e. weekly rent x 52) divided by the value of the property.
(e) Includes Darwin.

Source: Unpublished data, Rental Investors Survey, June 1997.


Investment return
There are a number of ways in which investors can receive a return on their residential rental property. For example, the capital value of their property can appreciate over time, they can gain benefits of reduced taxation through negative gearing, and they can earn rental income from the investment.

A commonly used measure of return on investments is the 'gross rate of return'. This is calculated by dividing the gross annual rent by the value of the property (as estimated by the owner). While useful, it should be noted that this measure is limited as it does not take into account any capital gains (or losses) from changes in the value of the property over time. It also excludes the benefits received from negative gearing.

In 1997, the average gross rate of return for all private residential rental properties was 7% per annum. Generally, properties with lower gross rates of return tended to be the higher-priced properties. Of properties with gross rates of return less than 5% per annum, 57% were valued at $200,000 or more. In comparison, of properties with gross rates of return of 8% or more, 63% were valued at less than $100,000.

Properties in Hobart and Adelaide had the highest rate of return (7.6% and 7.5% respectively), reflecting their lower median value.

For the 1995-96 financial year, investors reported that they were more likely to have made a profit on their rental property if they did not have a mortgage (58%) or if the mortgage was less than $50,000 (31%). For investors with larger mortgages, over half had made a loss (55%). Many of these, however, would have invested to gain the reduction in personal taxation from the negative gearing of a rental property.


AVERAGE GROSS RATE OF RETURN(a), JUNE 1997
(a) Per cent annual return is gross annual rent divided by the estimated value of the property.

Source: Household Investors in Rental Dwellings, June 1997 (cat. no. 8711.0).

Endnotes

1 Australian Bureau of Statistics 1998, Australia in Profile: A regional analysis, 1996, cat. no. 2032.0, ABS, Canberra.

2 Australian Bureau of Statistics 1997, Housing Occupancy and Costs 1995-96, cat. no. 4130.0, ABS, Canberra.



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