The government’s helping hand during 2020 has seen assistance arrive thick and fast to all corners of the community.
And rightly so!
Our economy would be tanking into an unholy mess if it weren’t for the help on offer. Fortunately, the past decade’s worth of decent fiscal management has seen the nation in a strong position to implement these measures.
But while I applaud the actions metred out to assist businesses, their employees, the unemployed and many others, there is one cohort that I believe continues to be effectively ignored.
Worse still, if we continue to shun them when handing out the help, many may exit their market resulting in chaos for the wider community.
The group I’m talking about is property investors
Are you joking?
I can hear the voices of dissent already, “You can’t be serious Mike! Property investors are money-hungry, high-net-wealth real estate hoarders who don’t give a hoot about anything except making more dough at the expense of tenants!”
I know the public perception of property investors isn’t exactly glowing, but let’s inject some common sense into the discussion.
For starters, residential real estate is our nation’s biggest investment class at $5.5 trillion according to RP Data. Bigger than the combined value of superannuation ($1.8 trillion), the stock market ($1.6 trillion) and commercial property ($0.7 trillion).
It generates vast cash flows of support not just for agents, property managers and owners, but industries like construction, development, maintenance, professional services and so on. All these folks rely on the income residential investment brings.
Australian Bureau of Statistics (ABS) census data also showed that of the nation’s 2.1 million property investors, around 1.5 million own just one investment, while approximately 400,000 own just two. That means around 90 per cent of all investors have modest holdings. These aren’t high-wealth individuals. They are mum-and-dad level landlords just looking to get ahead and plan for retirement.
Another factor to consider is that property investment is a voluntary decision. Why is that important? Well if property investors are disincentivised to buy assets, there are far less rentals available for the general population.
ABS data from 2015/16 revealed 25 per cent of Aussies rent from a private landlord, while just four per cent were in government- funded rentals.
We do not want to discourage people from investing in residential real estate, but that’s exactly what’s happened during this pandemic.
Where’s the money gone?
Major financial assistance has been extended to the general population to support businesses and their employees.
JobKeeper has been an enormous success by any measure. It helps households pay their rent and put food on the table, so I’d call it a win… although it is being wound back in coming months.
Of more concern was the disproportionate support handed to tenants early in the crisis at the expense of landlords. As soon as the pandemic was upon us, there were legislated moves to protect tenants from eviction.
Now, I’m a decent human and generally OK with this, but it did involve landlords giving up legally enforceable right under existing lease arrangements. It was also a blatant signal that legislators felt landlords couldn’t be trusted to do the civilised thing by their renters.
But landlords aren’t stupid. Apart from the fact most are very reasonable people, they also know helping genuinely hard-hit tenants would ensure their investments weren’t vacant.
So, the vast majority of investors stepped up and did what they could. Cut rents or deferred tenant debts.
There was help from the banks in terms of the six-month repayment holiday for borrowers, however this wasn’t free money. The amount is being recapitalised back into the loan and interest will be charged on this figure.
Another scheme was HomeBuilder which delivered a boost to employment in the construction industry… but it was applied to owner occupiers only, so investors missed out again.
This was a wasted opportunity in my opinion. Investors will complete renovations and maintenance on their assets, so any assistance to encourage this would have been ideal. Not only would it have supported construction, it would have benefitted tenants with plenty of new fittings, fixtures and finishes added to rentals.
Finally, in our recent federal budget there was literally nothing in terms of direct support for investors. There was some infrastructure spending to benefit everyone, along with some additional support for first homeowners, but that was it.
From what I can see, a lack of substantive support for investors has been a bad decision.
Recent reports show that rental vacancy rates are resilient in many big cities, and much of this has to do with supply.
Finn Simpson, a manager at Belle Property Dee Why recently posted the following about the lack of available rental properties in Sydney’s northern beaches after soft numbers were delivered for his suburb:
“Dee Why isn’t an isolated case either. There is a shortage of rental housing up and down the beaches. This extreme lack of supply is causing the rental market to do crazy things – we are leasing properties extremely fast and are getting offers way above what the landlord is asking.
“It’s making it very difficult and frustrating for tenants looking at the moment.”
In other words, demand for rental property remains good and rents are unlikely to soften in the near term.
I have little doubt part of this has been a fall in the supply. Many landlords will have been offloading their investments to help boost their household’s financial situations.
Some landlords have also been frightened off by changes to their state’s rental legislation that delivered more power to tenants. Why take the risk when you can potentially be forced to keep a bad renter?
And here’s the shame – not everyone can afford to buy a home, so renting is the primary alternative. A lack of rental supply hurts these tenants due to rising rents and tighter vacancy rates.
What I’d have done
At the very least I think if we’d lowered the qualifications around HomeBuilder, and allowed investors to participate, it would have resulted in a huge win for all.
Another move would have been to address depreciation rules for investors. Allowing investors to create improved tax breaks to encourages spending on investment assets – another big win for landlords, tenants and auxiliary industries such as construction.
While I have no doubt these suggestion will be met with silence by the powers that be, I do think it’s time we all realised property investors are a foundational cohort in this nation’s economy, and a little support during this troubling year would have yielded exponential benefits across the board.
Mike Mortlock is a Quantity Surveyor and Managing Director of MCG Quantity Surveyors. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating. You can visit them at www.mcgqs.com.au Mike Mortlock is a Tax Depreciation expert, Quantity Surveyor and Managing Director of MCG Quantity Surveyors. He is a regular speaker and commentator having been featured in the Financial Review and Sky Business. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating for investors. You can visit them at https://www.mcgqs.com.au