Australia's Property Investor Apocalypse

It came to pass, long ago

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In the world of the Australian property market the sizable participation of property investors is often seen as effectively a force of nature, whose role is all but a foregone conclusion in the nation’s collective consciousness.

Since the mid-1990s, that role has expanded significantly, from property investors owning 18.4% of occupied housing stock in 1994-95, to 27.1% of occupied housing stock by 2017-18. This represents a relative increase in the investor share of occupied housing stock of 47.3%.

This marked a major departure of what had become the norm for the property investor share of housing stock. Between 1961 and 1996, the level of occupied housing stock held by property investors remained remarkably stable hovering around the 18% level.

But when you look back further into Australia’s history you find quite a different picture, an era where the ranks of property investors not only didn’t expand but were quite literally decimated (in the truest sense of the Latin word), even as the amount of overall housing stock skyrocketed.

Today we reveal the largely forgotten story of Australia’s property investor depression.

Humble Beginnings

Today’s story begins in 1933. While unemployment is still high due to the Great Depression, the Australian economy is rapidly recovering, growing 6% in 1932-33 and employment levels are set to exceed pre-depression levels in the next 18 months.

At this time roughly 41% of all occupied dwellings are owned by property investors, with the figure for the capital cities higher again. This was broadly a continuation of the trend of property investor ownership that had been seen since the first census following Federation in 1901, at which roughly 45% of occupied housing stock was owned by investors.

Due to the impact of World War 2, our next snapshot comes in 1947. Between the impact of the Great Depression and the war, overall occupied housing stock has only grown by just 60,150 homes. However, the investor share of housing stock and the number of homes they hold nominally has already peaked for decades to come.

A Revolution

Over the next 7 years, Australia would see the largest increase in home ownership rates in its history and the largest fall in the share of occupied housing stock held by property investors. Between 1947 and 1954, the investor share of occupied housing stock fell from 37% to 26.2%.

Despite housing stock expanding by over 640,000 or 38.3% between 1933 and 1954, the number of occupied homes owned by property investors fell by more than 80,000.

At the 1961 census the proportion of investor held housing stock underwent another dramatic fall from 26.2% to 19.4%. It is this point where the level of investor held housing stock in nominal terms hits its low point, now down 123,500 homes from where it was in 1933, 28 years earlier or 17.9%.

It would take 38 years for the nominal number of occupied homes held by property investors to exceed the peak hit in 1933, at the 1971 census.

In terms of the investor held share of housing stock, 1966 marks the low point for today’s analysis, with 18.2%. On the other side of the coin, 1966 marks the absolute high point for Australia’s home ownership rate, hitting 73% of occupied homes.

Overall, the investor held share of housing stock had fallen by 55.6% marking a revolutionary shift to Australia becoming a nation of home owners.

The How - Inadvertent Success

The shift toward owner occupier home owners and away from property investors is one that is defined by both circumstance and policy shifts in varying degrees of measure over time.

At the outbreak of World War 2, the Menzies government froze rents at where they were in September 1939. War time rent controls would persist until being replaced by the Commonwealth Rent Control Act which was passed by the Labor government of Ben Chifley in 1948.

Upon the election of Robert Menzies for his second much longer stint as Prime Minister, there was a strong push from within the Coalition to end rent controls. But due to concerns that unwinding rent controls too swiftly could cause undesirable side effects, they were gradually unwound over time.

It would be 1953 before the Menzies government fully transferred rent control policies into the hands of the states rather than the federal government. Once in the hands of the states the fate of rent control policies varied dramatically. In Queensland, the unwind of rent controls would begin in 1954, with most controls eliminated by the end of 1955. At the other end of the spectrum, in New South Wales a very gradual removal of rent controls began in 1958 and continued until most controls were eliminated by the late 1960s. Some rent controls for eligible vulnerable persons persisted all the way into the 1980s.

After 14 years of federal government mandated rent control of some persuasion and various state measures persisting further still, long term cash flow returns on property had been poor. When combined with the Chifley and Menzies government mass building public housing and strongly encouraging the building of homes by the private sector, investors were largely left behind by the passage of time and changing government priorities.

The How - A Focus On Owner Occupiers

While the majority of the post war period being covered today occurred under the record length tenure of the Menzies government, the contribution made by the Labor government of Ben Chifley set the tone for the coming years.

Between 1945 and 1949, the Chifley government placed a heavy emphasis on expanding home ownership rates through a multitude of mechanisms:

• The Commonwealth-State Housing Agreement of 1945 provided provisions for occupants of public housing homes to purchase them, particularly war veterans.

• The then government owned Commonwealth Bank provided mortgages to owner occupiers on favourable terms, including low interest rates and expanded eligibility.

• War veterans were provided with mortgages with loans at significantly below market rates and the duration of mortgages was extended compared with pre-war norms.

• Explicitly directing the Commonwealth Bank to heavily prioritize lending to owner occupiers over property investors.

The focus on home ownership and favouring owner occupiers over property investors would continue into the 17 year term of Prime Minister Robert Menzies.

• Government backed guarantees and subsidies to building societies received to encourage lending to owner-occupiers, with a further emphasis on lending for new developments.

• Much higher deposit requirements for property investors to purchase homes when compared with owner occupiers. For example, requiring a 25-30% deposit was required for investors compared with 5-10% required for first home buyers.

• Maintaining the preferential interest rates for owner occupiers compared with investors seen under the Chifley government.

• Requiring property investors to provide a much longer history of savings and a much higher hurdle of provable financial means in order to qualify for an investment loan.

This list of the various policy settings the Chifley and Menzies government pursued in their time is naturally far from exhaustive, much more was done, but it does provide a degree of clarity on how they went about pursuing higher rates of home ownership.

From the time of the 1947 census to the last one under the Menzies government in 1966, the proportion of households buying a home with a mortgage had risen from 8% to 39.1%.

Meanwhile, home ownership rates had risen approximately 20 percentage points from 53% in 1947 to 73% in 1966, a peak that has not been eclipsed in the almost 60 years that have passed since.

Source: AMP

The Takeaway

Ice hockey legend Wayne Gretsky once said:

“You miss 100% of the shots you don’t take.”

And that more or less sums up where Australian housing policy is in 2025, we aren’t just missing the goal, we aren’t really even taking a shot.

Despite Chifley and Menzies being remembered among the pantheon of great figures from their respective parties, the approach of both leaders to the issue of housing and property investors in particular could scarcely be more different to their counterparts in the present. Both sought to stack the deck in favour of first home buyers and owner occupiers, and both succeeded.

In today’s Australia, the idea of either major party even attempting to curtail the incentive structure driving capital into property investment is scarcely even a passing thought at least publicly.

In the present there is naturally more to a successful housing policy, such as curtailing immigration to a level consistent with resolving the housing deficit on a permanent basis or more efficiently using the construction sector we have to build more new homes.

Ultimately, history shows us that if our leaders choose to prioritize home ownership and the social good it delivers in Australia, absolutely great things can be achieved. But as the successful policies of the post-war era illustrate the scales need to be tilted dramatically to first home buyers, while reducing demand from property investors.

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