The age of a typical Australian property investor has risen during the past 25 years, with the Reserve Bank revealing new data as Treasurer Jim Chalmers introduced legislation to restrict capital gains tax concessions and negative gearing in a bid to help the young buy a home.
Since the 50 per cent capital gains tax discount debuted in September 1999, the median age of housing investors has risen from 45 to 51, as of 2023.
During that time, the share of housing investors aged over 60 has increased from 12 per cent to 28 per cent, with landlords typically earning higher incomes.
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“Alongside the increasing age profile of housing investors, as a group they tend to be higher income earners,” the RBA report by senior analyst Alexandra Michielsen said.
“Higher income earners are much more likely to own investment properties than those on lower incomes.”
These higher income earners are also more likely to use rental losses to reduce their taxable income through negative gearing, with a majority of investor borrowers relying on this tax break.
“Higher income investors have greater borrowing capacity and have benefited more from tax concessions such as negative gearing and capital gain discounts,” the RBA report said.
“Rising property prices have lifted entry costs, making housing purchases harder for lower and middle-income households over time.”
The share of investors using negative gearing for at least one property rose during the 2000s, in the lead up to the global financial crisis, before declining in the 2010s and rising again in the 2020s to comprise 55 per cent of landlord borrowers, after the Reserve Bank cut interest rates to a record-low of 0.1 per cent during the pandemic.
“The share of negatively geared investors is likely to have increased further over recent years,” the Reserve Bank said.
But rising interest rates in 2022 and 2023 and again in 2026 have also had less effect on investors than owner-occupier borrowers.
“Higher income households also spend a smaller share of their income on essential expenses, giving them greater capacity to absorb shocks, and they have historically been less likely to become unemployed,” the report said.
“The analysis shows that investor characteristics have remained broadly stable over the past 20 years, a period over which investors have tended to default on their loans at a lower rate than owner-occupiers.”
While housing investors have been getting older, younger investors who bought more recently are more likely to rely on negative gearing, considering their rental yields as a proportion of the overall property price would be lower.
The Reserve Bank of Australia bulletin was released on Thursday as Dr Chalmers introduced a bill to the House of Representatives to replace the 50 per cent capital gains tax concession with indexation and a minimum 30 per cent tax from July 2027.
Negative gearing would also be restricted to brand new homes from that time.
“After more than two decades of a distorted tax system, property prices have far outstripped wage growth,” Dr Chalmers said.
“Following policy mistakes made a quarter of a century ago, home ownership has been pushed further and further out of reach, especially for young Australians.”
Westpac is expecting Labor’s tax policies, along with the Reserve Bank’s three interest rate rises so far this year, to cause property prices this year to fall in Sydney and Melbourne.
This could see some investors sell based on diminished expectations of capital growth.
“This reliance on capital gains alongside negative cash flows may make investors more likely to sell during a downturn or when expectations of future price growth are reassessed,” the RBA said.
The Reserve Bank also revealed that 70 per cent of housing investors owned just one investment property, a day after One Nation leader Pauline Hanson called for a negative gearing cap of two investment properties.
Australia was home to 2.3 million individual housing investors in 2022-23, equivalent to 10 per cent of the working-age population.
Those with multiple investment properties owned about half of all investment properties.
When it comes to having a mortgage, one-third of investors have an outstanding loan on both their investment property and their primary place of residence.
Borrowers with both an owner-occupier and an investor loan accounted for 70 per cent of leveraged investors with a debt-to-income ratio above “six” — a level the Australian Prudential Regulation Authority considers problematic.
“Households with investor and owner-occupier debt are also more indebted relative to their income, compared with households with only investment property debt,” the RBA said.
Those with a mortgage on their family home and multiple investment properties typically owed a median debt of $1.054 million in 2021, making up 10 per cent of investor households.
The highest income earners had a median debt of $720,000 compared with $300,000 for the lowest-income borrowers.
