Housing concentrated in the hands of a few investors as young people are locked out

The release of the latest taxation statistics for 2023-24 reveal a clear picture of who has been investing in residential property in Australia. This is particularly useful to clarify debates regarding the tax changes that the government is proposing.

The taxation statistics confirm that a tiny number of people are hoarding an enormous number of homes. They show that just 1% of taxpayers own 25% of all rental properties.

Two generous tax concessions have created these conditions: negative gearing and the 50% capital gains tax (CGT) discount.

Without these concessions, many of these properties would likely be sold to owner-occupiers, lifting home ownership rates.

The debate about the government’s reforms to negative gearing and capital gains tax has been full of claims that young people are going to lose out if the changes become law. The taxation statistics show something very different.

They show that only 4% of property investors are under 30, while more than half are aged over 50. And when we look specifically at the 1% of taxpayers who own a quarter of rental housing, two thirds of those are over 50, while only 1% are under 30.

This is not surprising. Young people are the ones being locked out of the property market. Meanwhile older Australians are making big returns turning homes into investments.

Those aged 50 plus are more likely to be investors regardless of how many investment properties they own. And the more properties an investor owns the less likely they are to be young.

Half of those who own one investment property are over 50. This increases to two-thirds of investors who own four investment properties. Three quarters of investors who own six or more properties are 50 plus.

The taxation statistics also reveal a big increase in the number of investors who are negatively geared.

Negative gearing is where an investor is making a loss on renting out their property and uses that loss to reduce their taxable income – which means reducing the tax they pay on their salary or other income like shares.

Negative gearing exploded after the introduction of the 50% capital gains tax discount in 1999, as investors rushed into the market, and pushed up house prices.

During the pandemic, record low interest rates made it almost impossible to be negatively geared. For the first time since the introduction of the discount, on average investors were unlikely to make a loss on their property.

But after interest rates went back up, negative gearing has again become the norm.

The changes that the government is making are designed to reduce the incentive for investors to get into the market. This will make housing more affordable and young people trying to buy a home of their own will be the biggest beneficiaries.

The taxation statistics show us that housing has become concentrated in the hands of a few investors. It also shows that younger people are largely missing out.

Matt Grudnoff is a Senior Economist at the Australia Institute