Expert Bust #32 Ideal Tenant/Owner Mix

Each census we get asked whether we rent or own the property we're in. Based on the answers published about a year later by the ABS, we can calculate the proportion of renters to owner-occupiers in a suburb.

I've heard some professionals in the industry suggest that investors want a high proportion of renters since it reflects demand. That is completely elbow-about-face.

Other experts suggest there's some goldielocks range that is not too high and not too low.

What does the data say? Well here's a chart based on calcs I made in 2018...


This chart shows the relationship between capital growth and proportion of renters. The figures used were from the 2016 census. The capital growth was for the 2 years from 2016 to 2018 (time of calculation).

The census before 2016 was 2011...



And before that we had 2006...



As you can see, the correlation doesn't change even over a long period of time. And there's no sweet-spot apparent either. The lower the proportion of renters, the better the capital growth.

It's pretty straightforward analysis, but if you don't have the data; or analysis skills; or you simply couldn't be bothered, then spewing out a baseless opinion is an efficient alternative to being right.

 

Do you think the higher the proportion of home owners, the more push back of development and hence this metric is a predictor of supply of which flows on to price?

 

That's interesting, as I've always heard and read the opposite.

 

I read and learnt that I should buy in areas with lower rental vs owner. Been focusing on areas with rent % below 30% of all houses. Look like I read it wrong but seems the right way based on this graph!!

 

No you read it correctly.

A higher proportion of OO in a suburb is better than a very high percentage of renters.

 

If the growth is only organic, that's without considering subdivision and development, that's understandable.

Of course once subdivided and developed, then the land component is smaller and hence growth per plot, with a smaller acreage, will be smaller.

 

Interesting concept. I haven't thought about it that way. It might have something to do with it. Other possible explanations might be that owner-occupiers take better care of their property or are more likely to over-capitalise, which might improve the overall look of the location.

 

Plus owner occupiers bid with emotion which will drag the price up higher than investors who base their price primarily on the numbers.

 

Great post ... would be really interested to see the 'average rental yield %' line overlapped on these would be.