Being positive about negative gearing

I agree we shouldn't read too much into correlations. For example, you observed earlier that share ownership has dropped off significantly in ten years, as property ownership has grown. An interesting observation on this is that GFC occurred 10 years ago. Really, what we are seeing is direct ownership of shares has dropped since the GFC. Is that really very surprising? GFC shocked a lot of investors and led them to believe the stockmarket is risky and volatile. Conversely, property is seen to be safe, low risk and not as volatile. "Safe as houses" is an example of this thinking. Of course we know that property is risky but the general perception is that it is not. The perception is we have had a stockmarket crash but never had an Australian property market crash so property must be safer.

I would not discount superannuation's impact on Australian investor psychology. I realise I am not a representative sample but I have super and I am a property investor. I have done all my property investing post-GFC. I can tell you from my own experience the factors that


The biggest super funds are: USA, UK, Japan, Australia (1).

USA: 55% of Americans are invested in stock market
That remains down from 62% in early 2008, before the financial crisis (2)
14% of households invest in direction stocks, down from 21% in 2004 (3)

UK: 15% of households invest in direct stocks/funds, down from 22% in 2004 (3)

Japan: ???

Australia: 33% of Australians invest in direct shares down from 44% in 2004 (3).

I tried to find Japan and Canada as well but can't seem to locate. From my limited sample it would appear:
- in countries with a mandated retirement scheme, direct share ownership is falling
- Australia is not unusual in this regard
- direct share ownership across three countries has been falling since GFC

Obviously more research required and it would be good to add some more countries to the mix.

In 2009, the percentage of population owning shares was (4):
Australia - 35.11%
Canada - 37.52%
Japan - 30.75%
UK - 15.09%
USA - 21.2% (households)

I would be very interesting to see how these numbers have changed in 8 years.

I haven't really seen anything that would indicate the falling rates of direct share ownership in Australia is anything unique.

It would be interesting to correlate this with direct home ownership. Updated March 2017 (5):
Australia - 67%
Canada - 66.5%
Japan - 61.9%
UK - 63.5%
USA - 63.7%

In terms of private home ownership and direct share investment, Australia seems to be on par with Canada and Japan. It's a bit hard to compare to UK and USA because their measures are a little different but neither seem to be ahead of Australia.

I would like to see more data.

(1) http://www.theaustralian.com.au/nat...n/news-story/b3d3ac2188e755afea55144751fa18a2
(2) Little Change in Percentage of Americans Who Own Stocks
(3) http://www.asx.com.au/documents/resources/australian-share-ownership-study-2014.pdf
(4) http://people.bath.ac.uk/az212/Shareholders-Grout-Megginson-Zalewska.pdf
(5) Australia Home Ownership Rate | 1966-2017 | Data | Chart | Calendar

 

An update on my theory of compulsory superannuation and the GFC driving investors to property... I am reading a paper on Housing: Enabling Markets to Work. It is basically a blueprint for globally stuffing up financial systems by commoditising housing. The good part of the report is it clearly sets out Housing Market Behaviour. A key point is this:

Policies that stimulate demand, in the presence of responsive supply systems, unambiguously increase the amount of housing services (and might or might not increase the price of housing); policies that facilitate supply unambiguously lower prices as well as increase the amount of housing services.​

This seems logical. What is not discussed however is Policies that stimulate demand in the presence of unresponsive supply systems. What happens then? Prices increase? The paper makes the point:

land use and building regulations decrease supply by raising housing supply costs, decreasing the responsiveness of housing supply to demand shifts, or both​

Thinking of Melbourne and Sydney... land restrictive land use and building regulations... sound familiar?

But back to super and the GFC. I think something important raised in this paper is this:

Unavailability of alternative secure assets in the economy may also increase demand for housing as a store of wealth.​

Prior to the GFC in Australia, I think shares were seen as more secure than now, notwithstanding the tech bubble crash of 2000. Certainly a higher percentage of Australians owned shares prior to the GFC than now. Is the decline in ownership due to uncertainty post GFC or the rising value of super, which is heavily invested in shares, or both? Who knows but there is certainly a strong correlation between the three. In 2006, 46% of Australians owned shares outside of super. By 2014, that number dropped to 36%. If investors do not see shares as a secure asset then it seems logical they would turn to housing as an investment asset class. I also tracked down some research showing that Australians do view direct property as less risky than shares.

When asked to assess the level of risk associated with various types of investments, international shares (47% subtotal high risk) and derivatives (40% subtotal high risk) were generally viewed as high risk investments.

Australian shares were generally regarded as mid-range risk (20% subtotal high risk).

Cash (75% subtotal low risk), bonds/fixed income products (50% subtotal low risk) and direct property/ real estate investments (42% subtotal low risk) were more likely to be identified as lower risk investments.
​

http://www.financialliteracy.gov.au...al-attitudes-and-behaviour-tracker_wave-2.pdf

So, Australian investors generally regard shares as mid-range risk with 20% of participants identifying Australian shares as high risk.

Conversely, 42% of those same investors see direct property/ real estate investments as low risk.

We would argue this is an illusion, after the property bubbles in USA, Ireland and Japan. However, it is investor attitudes driving the booms in Sydney and Melbourne and those investors see property as low risk. This has led to the super investment in property which has driven the boom. If you want to understand what is going on in Sydney and Melbourne I hightly recommend these 2 papers:

http://www.financialliteracy.gov.au...al-attitudes-and-behaviour-tracker_wave-2.pdf

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