Nila Sweeney | 21 Aug 2020
Some landlords may be doing it tough in the current market where rents and prices are falling, but most are still raking in more money than an average income earner – especially if they bought more than 10 years ago, a report says.
University of Sydney Henry Halloran Trust research fellow Cameron Murray said since 2000, real home prices across Australia had soared 150 per cent while real wages grew by less than a third.
“In 16 of the 29 quarters leading up to June 2019, the median Sydney home earned more than the median full-time worker earned from wages,” said Dr Murray, who co-authored the report, When homes earn more than jobs: the rentierization of the Australian housing market, with Josh Ryan-Collins.
“So being a landlord has been the best job in this country over the last 20 years. It’s by far the easiest job, especially in Sydney and Melbourne.”
In the past five years alone, dwelling prices across Australia have climbed by 3 per cent each year on average while rents grew 1.2 per cent, giving landlords a total of 4.2 per cent returns, CoreLogic data shows. By contrast, wages rose by only 2.1 per cent on average each year.
Dr Murray said the generous tax concessions given to investors and the easy access to credit had fuelled the run-up in prices as landlords pushed their borrowing to the limit.
Sydney investor Subodh Shirodkar, who has been investing since 2009 and has built a $7 million portfolio, said being a landlord had certainly paid handsomely.
“I have been able to leave my full-time corporate job and set up my own consulting business because my properties were making me more than I earned there,” Mr Shirodkar said.
“We were very lucky to have timed the market before prices started to take off so when it did, we were able to extract equity and buy multiple properties.
“So even when prices fell a couple of years ago, our portfolio managed to sustain itself because we bought well at the right time. I believe property is very reliable over the long term.”
The number of investors like Mr Shirodkar has grown from 10 per cent in the 1990s to 40 per cent up until the most recent boom that peaked in mid-2017.
While there has been a drop-off since the regulator started tightening investor lending, which caused a sharp decline in house prices between 2018 and 2019, the current low interest rate setting would again fuel a cycle of price inflation, Dr Murray said.
“Investor credit has dried up for now, but that’s not going to last forever,” he said.
“If the banks are lending money to anyone who wants to get a 2.5 per cent rate, it’s only a matter of time before landlords realise how good a deal this is and start investing again.”
Golden years may be over
But AMP chief economist Shane Oliver said the pandemic had changed the property market’s dynamics for investors.
“The chronic lack of supply relative to very strong demand for housing over the last 15 years, at a time of high levels of immigration, has paid off in spades for landlords, but this is not the case in today’s market,” Dr Oliver said.
“There’s a high probability, particularly if immigration doesn’t return in strong numbers and we continue to see excess stock in the rental market, that prices and rent will fall and stay weak for a very long time.
“Politically it will be difficult for the government to simply put immigration levels back to previous levels, because we have higher unemployment, which means a long period of much slower demand for housing.”
BIS Oxford Economics executive director Robert Mellor agreed the golden years of property investing may be over.
“I don’t think another investor-led housing boom is around the corner and a key reason is investors will be sitting on the sidelines for a while given falling rents and, for now, falling prices,” he said.