Investors rush back into housing. Yes, we all knew that, but gee, so fast

When the Australian housing market wobbled in 2017-18, property investors slunk away. They didn’t return immediately, and when the market looked unsteady again in the pandemic investors were nowhere to be found. Auctions were full of people who — unbelievably — actually wanted to live in the home they were buying.

But now, as the graph above shows, property investors are coming back. A hot housing market attracts investors like a drop of blood attracts sharks. Why? God knows it’s not about the rental yields. The yield on renting out a property in Australia can be under 3% — a terrible return for the effort. Many property investors lose money on the renting side — that’s what negative gearing is, after all.

Nope, for Australian housing investors it is all about price appreciation, and the generous capital gains tax discounts they can get. Low mortgage interest rates let prospective owner occupiers borrow more, prices rise, and that brings the investors back to the game. And on it goes…