Does it matter how many properties landlords own?
I asked myself this as I analysed the latest taxation statistics from the ATO. This data, covering the period 1999-00 until 2020-21, provides an indication of the situation for people with at least one “interest” in a rental property: how many properties they own and how much profit or loss they are making.
In some ways, these figures are irrelevant. Better Renting is a tenant advocacy organisation. We want people who rent to have decent homes. I don’t care too much if their landlord owns one property or five: what’s much more important to me is the experience of the people living in these properties and making them their homes.
But, of course, it does matter. Over the last twelve months we’ve all been hearing more and more about people who are burdened with hefty rent increases, often on top of other issues like a substandard dwelling and neglected repairs. It makes sense to consider the relative positions of the person benefiting from that rent increase and the one suffering from it.
There’s something so straightforward about a rent increase. When the rent goes up, the renter has less money available to them and the landlord has more. It’s a direct flow from Peter to Paul. And the data makes it very clear that Paul needs that money much less than Peter does.
Consider this: just over one in two rental properties are owned by someone who owns two or more rental properties. On average, this owner has 2.6 properties. Typically, they also own their own home. That makes 3.6 properties. So when a renter says they got a rent increase, there’s a 50 per cent chance that the person behind that increase owns about 3.6 properties.
Another thing jumped out at me from this data. The last tax year, 2020-21, was the most lucrative year on record for landlords. 53 per cent made a net profit, with the total profit exceeding $10 billion. You might remember 2020-21. If you’re a renter, it might be the year you lost your casual job, or had to draw down on your super, or moved back home to try to reduce your costs. In many cases, any savings you had were eroded. Meanwhile, landlords were making back more than ever.
And those 47 per cent of landlords who made a loss? Together, they lost about $7.3 billion. Funnily enough, current tax settings subsidise these losses and encourage wealthy investors to speculate on property. As a rough estimate, if investors were using these losses to reduce their taxable incomes at a marginal tax rate of 32.5 per cent, they were able to reduce their tax liability by 32.5c on the dollar: so that $7.3 billion loss means a cool taxpayer subsidy of $2.4 billion. For a renter who is just looking for a decent home, it adds insult to injury to know that your tax dollars are being wasted like this.
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These findings strengthen the case for limits on rent increases. Limits on increases mean renters have more predictability about their living costs, and we end up with more money in the pockets of people who have less wealth. This is good. Jurisdictions should stop justifying their pro-wealthy inertia and get on board with helping to make housing more secure and affordable for the growing number of people who rent.
Then could we tackle these tax concessions for wealthy landlords? As estimated above, negative gearing cost over $2 billion in 2020-21. The capital gains tax discount costs even more, and the subsidy is even more skewed towards those with the most. Labor could cap the amount of negative gearing: you can’t deduct more than, say, $5000 per year. They could also reduce the capital gains tax discount, or require landlords to hold assets for longer in order to be eligible: something like 10 years would help to tackle speculation and reduced the number of renters forced out of their homes through frequent property sales.
Ultimately, these are political questions: whose interests should policy serve? This isn’t an empirical question, and it’s one that’s rightly teased out through public debate. For what it’s worth though, I think policy should serve those people whose only rental property interest is the place they’re trying to make into a home.
