Housing and an ageing population: Eliza Owen
GUEST OBSERVER
The Eastern seaboard markets have performed counter-cyclically to growth in wages and GDP, both of which are trending below the historical average.
When wages are low but growth in housing is high, the credit used to fund this growth in housing is found elsewhere.
Reportedly, an increased number of Australians coming into retirement have used money in a Self-Managed Super Fund (SMSF) to take out a loan for property. The new normal of low economic growth and low yields from most assets makes east-coast property an economic anomaly.
Graph 3 shows the latest data from the Australian Taxation Office on SMSFs. The graph plots the number of SMSFs and the asset allocation to property, at each quarter over the last 5 years.
Graph 3: Percentage of Real Estate Assets in SMSFs vs No. SMSFs
Source: ATO, SMSF Statistical Report September 2015
Without a longer time series, it is difficult to say whether residential property has made up an increasing percentage of retirement portfolios. However, the increase of SMSFs with a fairly consistent rate of allocation to residential real estate suggests this could be one source of growth in the Australian housing market.
From the March to September quarter of 2015, there was an increase of allocation to residential property from SMSFs, of 0.43 percent. This was a time when the Sydney market was coming into its peak growth rates for this cycle.
Interestingly, the same period saw a higher increase in the share of commercial property that composed SMSFs assets. This could be because the ATO sometimes permits the purchase of business premises for fund members to operate in. Commercial property also presents a favourable tax environment, with a capital gains tax of just 10 percent if the property is held for over 12 months.
These trends are important to note as they highlight the sources of demand outside of Australian wages and employment. When there are multiple sources of demand flowing into a locally supplied market, property prices could be affected by the current regulatory uncertainty around superannuation.
It is also important to note that the oldest baby boomers in Australia are now at retirement age. The property purchased through SMSFs will one day need to be liquidated in order to supplement pension income and address extremely high health and aged care costs. If a large number of stock is to be liquidated at once, this could erode some value in the properties owned by retirees, unless offset by an increased population.
Eliza Owen, is market analyst for onthehouse.com.au and can be contacted here.
