Rental property investment in disadvantaged areas: the means and motivations of Western Sydney’s new landlords

Abstract

For more than two decades, Australia’s private rental sector (PRS) has seen rapid growth, as latterly replicated in most other anglophone nations. Commentary and scholarly attention have generally focused on the population occupying this growing sector – so-called ‘generation rent’. The corollary, ‘generation landlord’, has meanwhile remained largely obscure. This article argues that the emerging literature on the ‘financialization of housing’ offers insights into the ongoing rise of investor landlords. Our analysis also contributes to the picture of financialized rental property investment; here drawing on a survey of investor landlords and their properties in an Australian PRS growth centre: disadvantaged suburbs in western Sydney. Most investors lived elsewhere; the attractions of western Sydney property acquisition being the expectation of unusually large capital gains, the prospect of amassing multiple properties and the local scope for intensified asset utilization. Referencing existing research evidence, this suggests that, even by comparison with the 2000s, a more professional, financialized investor mindset is emerging.

Keywords:

• Private rental investment
• private landlords
• housing market dynamics

Acknowledgments

Profound thanks from the authors to UNSW colleagues Ryan van den Nouwelant and Ella Roessler-Holgate for their inputs to fieldwork and analysis, as well as to colleagues at the NSW Government Land and Property Information Unit for kindly enabling access to property transaction records. We are also grateful to the three anonymous referees who helped to enhance the paper in its final form.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 ‘Disadvantaged areas’ defined as those Statistical Area Level 2 (SA2) units in the lowest-ranked decile (nation-wide) per ABS Socio-Economic Indicator for Areas (SEIFA) score.

2 A figure that will include household second residences as well as rental properties.

3 As an up-to-date estimate, this source is used in preference to the latest UK Government survey of private landlords – the English Private Landlords Survey 2019. This decision reflects our concerns about EPLS methodology. As officially acknowledged ‘…the EPLS is an online survey of almost 8000 landlords and agents … registered with one of the three government-backed Tenancy Deposit Protection (TDP) schemes’ (MHCLG, 2019, p. 4). At the same time, it is noted in the official report that such schemes encompass only 56–71% of private renters. Implicitly, it is recognised that this is likely to bias the results: ‘Between 2010 and 2018, there has been a significant decrease in the proportion of landlords with just one property, from 78% to 45%. This decrease may in part be a function of the different methodology’ (p. 14).

4 Negative gearing is a tax rule allowing investors (including landlords) to deduct net property-holding expenses, including loan interest payments from other income unrelated to the asset. Thus, a landlord can incur rental losses that reduce the tax otherwise payable on salary or other income, in anticipation of capital gains, which are taxed at half the rate of salary and other income. Together, the annual concessional value of negative gearing and the capital gains tax discount total an estimated $8–12 billion – effectively a landlord subsidy (Pawson et al., 2020). These provisions are internationally unusual although not (as sometimes claimed) unique (Martin et al., 2018).

5 Wright and Yanotti ‘s unit of analysis is the ABS Statistical Area Level 4 (SA4), which comprise 100,000–500,000 persons and approximates a local labour market. There are 14 SA4s in Greater Sydney, 107 across Australia.

6 The ABS’s SA2 comprises, on average, 10,000 persons and approximates a suburb. Our nine SA2s are in four Sydney SA4s.

7 The SEIFA is an ABS statistical measure drawing on 17 variables covering household income, education, employment, occupation, housing and other indicators of disadvantage (ABS, 2008).

8 This latter condition – gauged according to ABS census analysis – was included for purely practical purposes to maximise the size of the survey address population.

9 In NSW and other Australian jurisdictions incoming tenants are routinely required to lodge a bond with a designated government agency. Associated records also function as valuable data source rental market transactions.

10 Note that the analytical frame used in this paper is the 252 properties owned by responding rental investor landlords. Therefore, owner-specific (rather than property-specific) responses from the eight participants owning two properties in our ‘acquired rental properties’ sample are duplicated.

11 This comment references the fact that state Land Tax liability is governed by extent of property holdings in that jurisdiction, not nationally.

12 We are grateful to [removed for peer review] for preparing the map.

Additional information

Funding

This study was supported by the Australian Research Council grant DP150102582.

Notes on contributors

Hal Pawson

Hal Pawson is a Professor of Housing Research and Policy at the University of NSW.

Chris Martin

Chris Martin is a Senior Research Fellow at the University of NSW.