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MAIN FINDINGS

INCOME UNITS

1 Respondents were asked how many residential rental properties they owned. Each respondent was then asked to provide data for their most recently acquired properties up to a maximum of three. Therefore, for one-parent and one-person income units, data were collected for up to three properties and for couple income units, up to six properties. Data in this diagram relate to each income unit's ownership of these properties.

Recent changes to government policy on public rental housing will place more reliance on the private rental market in the coming years. In particular, the Commonwealth Government intends to move away from the provision of capital funding for government rental housing in favour of the payment of rental assistance to low income clients who would then find housing in the private rental market. (Department of Social Security, Overview of the Australian Private Rental Market, Policy Research Paper No. 72, October 1996.)

The private rental market provides housing for a wide variety of Australian households. Apart from the low income groups who may not be able to purchase their own homes, rental housing is often a first step to independence for young people who are between stages of living with parents and buying their own home. There are also many other households who live in rental housing by choice.

Private rental housing is provided by a diverse group of property owners ranging from householders to non-profit institutions, employers and corporations. The largest group of providers comprises the private householders who have invested in residential rental properties. These household investors provided rental housing for approximately 60% of households who rented in the private market in 1995-96 (Cat. no. 4130.0).

In recognition of the importance of these investors in the rental market, the Australian Bureau of Statistics (ABS) conducted a household survey in June 1997 which identified owners of residential rental property. The survey collected data on the demographic and financial characteristics of these investors, their reasons for investing in the rental housing market and information about the properties they owned.

In this publication, investors have been grouped into restricted household units called income units (see Glossary). This choice of analytical unit reflects the pooling or sharing of income that takes place (to varying degrees) within families. These relationships comprise couple relationships and relationships between parent(s) and dependent children. All other household members are assumed to form separate income units.

To assist in analysing likely changes to the private residential rental market, the survey also collected information on investors who intended to sell their properties and on income units that were contemplating investing in residential rental property in the future.

The data from this survey provide an update of information collected in the Rental Investors Survey conducted by the ABS in 1993. (See Explanatory Notes for information on comparability with the 1993 survey.)

HOUSEHOLD INVESTORS IN RESIDENTIAL RENTAL PROPERTY
In June 1997, approximately 584,200 income units owned or partly owned residential rental property (table 1). These rental investors represented 6.5% of all income units living in private dwellings in Australia.

Most of these investors were small investors as 76% owned or partly owned one property only (table 1). As landlords they constituted a diverse group in terms of their age, their income, their labour force status and family status. However, certain patterns of investment were distinguishable for different groups.

AGE

Ownership of investment property increased through the prime working years of reference persons in income units. Approximately 4% of income units with the reference person aged 18-34 years were investors, increasing to 9% of those where the person was aged 35-44, and 12% of those where the person was aged 45-54. The incidence of ownership of rental property declined in the pre-retirement years and was 3% for those with a reference person aged 65 years and over.

As investor income units tended to have reference persons concentrated in the 35-64 years age group, they were also likely to be couple income units, many with children still at home. In June 1997, approximately 76% of investors were couples and 47% of investors were couples with the reference person aged 35-54 years (table 1).

Investor couples tended to have higher incomes than those who did not own rental properties. While the data on income from the survey suffer from a high non-response rate (24%), the median weekly income for couple investor units that did report income was $1,162 per week (table 4). Preliminary data from a recent survey of all income units in the population show that the median income for all couple units, whether investors or not, was $766 per week in 1996-97 (Income Distribution, Australia, 1996-97 (Cat. no. 6523.0)).

	Median weekly income ($)
Income unit type	Investor income units	All income units(a)
Couples	1 162	766
One person	666	302
All income units(b)	1 009	477
(a) Survey of Income and Housing Costs, 1996-97 (Cat. no. 6523.0).
(b) Includes one-parent income units.

One-person income units formed a much smaller group of investors with approximately 129,300 (or 3% of all single income units in the population) owning residential rental properties in June 1997 (table 4). Like their couple counterparts, the majority (79%) of these single investors were employed.

However, one-person investor income units tended to have higher proportions of people in the elderly and young age groups than couple investors. There were 13% of one-person investor units aged 65 years and over compared to 7% of investor couples with the reference person in this age group. With the younger groups, almost 38% of one-person investor units were aged under 35 years compared to 14% of reference persons for the couple investors.

In addition to owning a residential rental property, the majority (76%) of investor income units also owned or were paying off the dwelling they were living in. This was true for most income unit types. However, 60% of single investors aged less than 35 were either living rent free or paying rent to someone else in the household. Almost all of these were living with parents and some may have been leasing out properties they were buying as future homes.

MOTIVATION FOR INVESTMENT

Despite the diverse demographic profile of investors, they shared some common reasons for investing. Most investors (66%) stated that one of the reasons considered when purchasing a property was that it provided a secure long-term investment (table 6).

The importance of negative gearing declined with the age of the reference person with a negligible proportion aged 65 years and over citing this as a consideration in their investment decisions (table 6). For this older group of investors, the receipt of rental income was more important and cited as an investment motive by almost 30%.

As noted in the previous section, many younger investors were renting properties that might constitute a future home for them. Almost 21% of investor income units with reference persons under the age of 35 held residential rental properties with this option in mind. Even for the older age groups, this was still an important consideration.

There was also a group of 'reluctant investors' - with 7% of investors stating that their properties were being rented because they wanted to sell but were unable to find a buyer.

ACQUISITION AND OWNERSHIP OF PROPERTIES

While most owners of residential rental properties specifically purchased the dwelling to rent out, some owners were also leasing out their former homes. In June 1997, 149,400 investors (or 26% of all investors) were in this category (table 7). An additional 22,400 investors had inherited their most recently acquired rental property.

The different means of acquiring properties have implications for legal ownership of the investments. In the summary above, these properties have been discussed as though they were the joint property of partners in couple units. This may be an appropriate view when considering properties as wealth holdings. However, for taxation and other purposes, property may not always be owned jointly. For example, while 440,900 investor income units were couples, only 239,600 of these couples held all their reported residential rental properties jointly in the names of the reference person and their partner. A further 54,500 couples owned at least one residential rental property jointly, while 146,800 couples owned no properties jointly. (See "Income Units" diagram above.) Ownership for these two groups was either as individuals or with others outside the income unit.

FINANCIAL ARRANGEMENTS

Almost 70% of investors had a mortgage or loan held against their investment properties with the median mortgage value being $81,000 (table 11). The amount of interest payable on these mortgages, along with other costs, had a major effect on the net current returns from the investments.

In June 1997, almost 30% of investors stated that they made a profit on their property investments in 1995-96, 11% broke even and 36% made a loss (table 11). (The remaining investors either did not know whether they made a profit or loss (10%) or had bought the property after the end of the financial year and therefore were not asked the question (14%).)

	INVESTORS
	No mortgages	With mortgages	Total
Net annual return	%	%	%
Loss	10.8	48.0	35.9
Break even	12.3	10.4	11.0
Profit	58.4	15.4	29.4
Not stated	8.3	10.2	9.5
Not applicable	10.2	16.0	14.1
All investor units	100.0	100.0	100.0

In June 1997, the 584,200 investor income units reported details for 689,400 rental properties (table 12). (In terms of dwellings available for rental, these accounted for 765,900 dwelling units when multiple unit properties (i.e. blocks of flats) were taken into account (table 13).) These properties provided a wide variety of housing in terms of their structures, values and the rents charged.

Approximately 62% of the rental properties were separate houses, with an additional 22% being single flats and apartments (table 12). Most of the remaining rental stock was owned as semi-detached or terrace houses (12%), though 4% of the properties formed larger investments of blocks of flats or apartments.

In June 1997, the median value of these rental properties, as estimated by their owners, was $125,000. Approximately 201,300 properties (29%) were valued at less than $100,000 (table 13). Values of residential rental properties varied according to their location. While 66% of properties in Tasmania were valued at less than $100,000, only 16% of properties in New South Wales were in this value range (table 13). At the top end of the market, 118,200 (17%) of rental properties were valued at $200,000 or more. Half of these were in New South Wales and that State also had the highest median value of property ($158,000), reflecting the high prices of real estate generally in Sydney.

Proportionally, there was less variation in the value of rents paid than there was in the value of the properties themselves. With a median weekly rent of $154 in June 1997, only 9% of properties were being let for less than $100 per week. Almost 68% of properties were let for between $100 and $200 per week.

Gross rates of return on rental properties tended to decline as the value of the property increased. Approximately 57% of the properties with a gross rate of return of less than 5% were valued at $200,000 or more (table 12). At the other end of the scale, 63% of properties with a gross rate of return of 8% or more were valued at less than $100,000.

In addition, 95,300 current investors stated they intended to sell an investment property in the two years following the survey (table 15). They gave a variety of reasons for these intentions. Approximately 23% of intending sellers stated they would sell because they needed funds for family or business purposes, and 18% cited inadequate return on their investments as their reason for intending to sell. Both these groups had high median weekly incomes, $950 and $987 respectively, compared with the median income of all intending sellers ($892). However, these groups tended to have slightly lower median weekly incomes than all investors ($1,009) (table 1). Other intending sellers who stated they wanted to sell because the properties involved too much work or worry, they could not afford to keep them, or to realise capital gain, had lower median weekly incomes - $611, $788, and $771 respectively.

These reasons for current investors intending to sell were fairly similar to the reasons given by the 201,100 income units who had actually sold properties over the previous five years. Again, the main reasons for those sales were that the investors needed funds for family or business (33%) or the investments were too much work or worry (16%) (table 14).

POTENTIAL INVESTMENT
In June 1997, approximately 203,900 income units stated that they intended to invest in residential rental properties during the two years following the survey (table 16). Of these, 153,600 were new investors while the remainder were current investors who planned to purchase another property.

The age profile of reference persons in potential investor income units was relatively young with almost half (92,500) being under the age of 35 years. Over half of the potential investors (122,200) were couple units, mainly with both partners employed.

As with existing investors, a large proportion (80%) of intending investors stated that they would buy the property for long-term investment, and nearly a quarter also cited negative gearing as a motivation for purchase.