Total Returns From Housing are Starting to Ease

CoreLogic’s Accumulation Index looks at the total returns from the housing asset class factoring in the change in the value of the dwelling and the gross rental return from the property.

The CoreLogic Accumulation Index shows that nationally, the total returns from the housing asset class over the 12 months to August 2017 were 13.2%.  Because the return is calculated from value change as well as the gross rental yield, you tend to find that houses have a superior value growth performance while units offer superior rental returns.  Over the past year, total returns for houses nationally have been recorded at 13.5% compared to a 12.0% return for units.  Over the 10 years to August 2017, the annual total returns for housing nationally have been recorded at 8.8%, split between 8.9% for houses and 8.5% for units.

Annual total returns from the housing asset class,


Total housing returns have generally been superior in capital cities to regional markets however, in the 2008 and 2010-11 downturns, returns slumped by a greater magnitude in the capital cities.  Over the past decade, combined capital city annual total returns have been recorded at 9.3% with returns of 9.5% for houses and 9.0% for units.  Over the 12 months to August 2017, total returns have been recorded at 14.0% for houses and 12.3% for units.  Like the national chart, the recent data for the combined capital cities shows that total returns have started to slow.

Annual total returns from the housing asset class,
combined capital cities


Regional markets are also beginning to see total returns slow however, the returns over recent years have generally not been as strong as those across the combined capital cities.  Over the past 12 months, total returns have been recorded at 11.7% for houses and 10.2% for units.  Over the past decade, annual total returns for housing outside of the capital cities have been recorded at 7.0%, 7.2% for houses and 5.6% for units.

Annual total returns from the housing asset class,
combined regional markets


Hobart has recorded the strongest annual growth of all capital cities over the past year and it also has some of the highest rental yields which has meant it has had the strongest total returns.  Total returns for houses over the past year have been above 10% in each of Sydney, Melbourne, Adelaide, Hobart and Canberra.  For units, double-digit total returns have been achieved over the past year in each of Sydney, Melbourne and Hobart.  Units in Darwin were the only capital city property type to achieve negative returns over the past year.

Annual total returns from the housing asset class,
individual capital cities, to Aug-17


With capital growth now appearing to have peaked and rental yields at record lows it is reasonable to expect a further moderating of total returns over the coming months.  The other important thing to consider when looking at total returns is the calculation of the rental income.  Although rents are increasing in many areas, the assumption in a gross rental yield calculation is that the property is occupied for 52 weeks of the year.  In some parts of the country this is increasingly difficult to achieve and it can eat into the investment returns.

The total returns data, particularly for the past decade, shows why housing investment has been so popular and hit record highs.  Returns have been fairly consistent and less volatile than equities however, the ongoing strength and the evidence of a recent slowdown should give investors pause for thought.  With mortgage rates starting to increase for investors, record-high levels of new housing supply and value growth slowing, housing investors shouldn’t assume that the types of returns seen over recent years will continue to be replicated going forward.




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The latest data on dwelling approvals and housing finance are firmer than anticipated, while house price growth in Sydney and Melbourne remains relatively strong. Taken together, this suggests that the moderation in the housing market and residential construction will be gradual. Uncertainty about the timing and extent of the expected downturn in home-building continues to pose a risk to our GDP forecast

SPRINGWOOD PROPERTY INVESTMENT OPPORTUNITIES – Each house/dwelling is separately titled, as houses on any estateSPRINGWOOD PROPERTY INVESTMENT OPPORTUNITIES – Each house/dwelling is separately titled, as houses on any estate

The Australian Bureau of Statistics (ABS) released their biennial survey of household income and wealth earlier this week.  The release has a huge amount of valuable data but at least initially I thought it was pertinent to look at the dwelling tenure data.  The information is provided from 1994-95 up until the latest release (2015-16).

The tenure data is premised upon who is currently residing in the property, this is important to understand because when we look at the proportion of residents who own without a mortgage, for example, this doesn’t necessarily represent the total number of dwellings owned outright.  The reason being that some of those properties that are occupied by renters may be owned outright by the person who is renting that property out.


As at the 2015-16 release 30.4% of households were lived in by someone that owned that property outright.  This figure was lower than the 31.4% in 2013-14 and as the above chart shows it has been steadily trending lower over recent years.  In fact, at the peak throughout the timeframe shown, 42.8% of households had no mortgage in 1995-96.  This is an interesting statistic when you consider than many people suggest that lower mortgage rates result in improved housing affordability.  In June 1996 the standard variable mortgage rate was recorded at 9.75% compared to a mortgage rate of 5.4% in June 2016.  The ongoing decline in mortgage rates has pushed dwelling values higher and although it has made servicing mortgage debt easier it has not led to a greater proportion of the population living mortgage free.


With fewer households owning their home outright, there has been an increase in the proportion of households that live in a home that they own and still carry mortgage debt.  In 2015-16, 37.1% of households had mortgage debt which has increased from 35.8% in 2013-14.  At its low point over the period highlighted on the chart, 28.1% of households had mortgage debt in 1995-96.  Since 2003-04, there has consistently been a higher proportion of households with mortgage debt than those without.


As the rates of outright home ownership have fallen there has been a rise in the proportion of households which are rented.  Whereas outright home ownership has continued to fall and ownership with a mortgage has risen, it is interesting to note how the proportion of rental households has actually declined since the last survey.  The latest data shows that in 2015-16, 30.3% of households nationally were rented compared to 31.0% in 2013-14.  Back in 1994-95 only 25.7% of households were rented.


As the prominence of renting has increased over time, the responsibility to provide rental accommodation has increasingly fallen on private citizens rather than the public sector.  At its peak in 1995-96, 6.0% of households were rental properties which were rented from state housing authorities, by 2015-16 this figure had fallen to just 3.5%.  This is an important consideration for governments when considering potential changes to investment policies such as negative gearing.  Governments are clearly not as involved in providing housing as they have been in the past, if private citizens or companies are going to be responsible for providing that housing it is likely they will require some incentives other than just the rental income, especially considering how low rental yields are across Australian cities.

The charts presented to highlight how home ownership is continuing to decline which is leading to a greater proportion of the population either being in mortgage debt or renting.  As the population ages, this can create challenges especially if an increasing number of Australians are retiring but still carry mortgage debt.  It also highlights that simply building more homes is not necessarily a solution to increasing homeownership rates.  As we’ve seen over recent years during a housing construction boom first home buyer levels have been at near record lows and housing investment levels have hit all-time highs.  Arresting the decline in home ownership in Australia will be no easy feat, however, the data indicates that simply building more housing won’t necessarily solve the problem particularly if it isn’t at a price point which is reachable for lower and middle-income earners.

We would expect that over the coming years, the rate of home ownership will continue to fall especially given we have seen dwelling values continue to climb since June 2016.

SPRINGWOOD PROPERTY INVESTMENT OPPORTUNITIES – Each house/dwelling is separately titled, as houses on any estateSPRINGWOOD PROPERTY INVESTMENT OPPORTUNITIES – Each house/dwelling is separately titled, as houses on any estate

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About ljgrealestate 据联大

Removing the Hassle from Sales and Rentals across South East Queensland. Aim to Empower other like minded Property Investors. L J Gilland Real Estate is a prestigious boutique agency specializing in Property Investment Management Services and the Sales of Investment Properties with tenants in place. Comprised of a top performing group of handpicked specialists, our Agents proudly serve Property Investors in Queensland. Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. Carlos and Linda Debello offer property investor's the confidence to sell and lease in any market. We provide comprehensive market appraisals, exclusive multimedia marketing campaigns, and knowledgeable, highly personalized counsel on all aspects of real estate. Our Property Management Team is equally considerate, offering investors with in-depth advise, well-researched rental valuations, and highly professional rental management services. Carlos’ direct mobiles are 0400 833 800 & 0413560808. Linda’s mobiles are 0409995578 & 0414978700 (prefer email contact for Linda). Office 07 3263 6085.
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