What’s The Best Percentage of Renters For Capital Growth?

https://www.youtube.com/watch?v=tuz3m5upSy4

Some experts claim there is an ideal percentage of renters in a suburb vs owner occupiers.

But what does the data actually say and what is the best % of renters in the suburb we are investing in?

Select Residential Property

DSR Data

Read this article: https://selectresidentialproperty.com.au/busting/whats-the-ideal-tenant-to-owner-mix/

0:00 – Introduction
1:00 – Why people speculate that this is important
3:25 – What does the data say (2 years)
5:30 – 7 years of data
5:50 – 12 years of data
6:33 – Is this something to consider for suburb growth?
9:00 – Why might this happen?
11:10 – How to find % of renters in an area

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Transcription

Ryan 0:00
Some experts claim that there is an ideal percentage of renter’s in a suburb versus owner occupiers where you want to invest in suburbs that have just the right amount of renters and just the right amount of owner occupiers. And not one way or another, that it’s going to give you, you know, the best chance of renting your property and the best chance of selling your property. But what does the data actually say about what is the best percentage of renters? Do we want a high percentage of renters? So there’s lots of people in the area to rent out property? Do we want a low percentage and mostly owner occupiers, which means there might not be as rental properties in the market? Is that going to be hard to then rent out the property? How does all this affect us? So today, I’ve got with me, Jeremy Shepherd from select residential property to talk through the data and to say, Okay, what does the data say about percentage of renters versus the growth that an area is likely to help? So thanks for coming on today, Jeremy,

Jeremy 0:56
thanks for having me on your show. Right.

Ryan 0:59
Okay, so what does the data tell us about this Goldilocks zone of just you know, the right amount of renters? I think, if I’ve ever heard it, which I don’t know if I have, but it would be like around that kind of 20 to 30 35%. Mark, and then people say, you know, anything that’s too high renters is probably not good.

Jeremy 1:20
Yeah. Well, there’s there’s an argument where you say are too high renters means? There aren’t enough owner occupiers taking better care of their property. There’s too many other landlords you competing with over the over the other, the tenants available. And then the opposite is some people are arguing. Well, if there are no tenants there, how do we know that that anyone wants to rent there. But that’s really just a case of, there’s no supply of rental property, I would much prefer to buy in a location where, where there are no other landlords I’m competing with. But anyway, that’s all very good data, we

Ryan 1:56
heard from at least one expert in the field that has said you want to target suburbs with this range of renters. And you don’t want to look in suburbs that have really low percentage of renter’s because it can be hard to rent out your property. And I remember looking at that thinking, I don’t know about that video that you and I have done on population growth versus capital growth. And the fact that, you know, population growth just kind of indicates the supply that already is existing and has been built over time, because people are waiting in the streets in order to move into a suburb or anything like that. If there’s no houses there for them to move into. So when I think about rental demand in a market, I don’t really look at percentage of properties that are rented, I would look at vacancy rates in the area. And I would think if there’s less rental properties available, assuming the area still has good fundamentals, then you know, I I’d rather that area, because then you’re the only rental property. And so

Jeremy 3:00
right. Yeah, exactly. I mean, what what do you what are you looking at when you see all 0%? renters? Some people are thinking, or nobody wants to live there. But what about all the owner occupiers that represent the

Ryan 3:14
hunter, they want to live there? Yeah, I

Jeremy 3:16
think they do. Anyway, that’s all just theoretical. Let me go down to what the data says, oh, by the way, this, this all comes from census data. So there’s an image of the question in the census. I don’t know which census what that was taken from. But it’s Yeah, do you rent Do you own? There are actually about eight or nine different categories that the OBS puts it into?

Ryan 3:38
It’ll be good to have new census data soon. Because Oh, yeah, we

Jeremy 3:41
got one coming out this year. Yeah. The thing is that I published that data until about a year after census night. So still a rain

Ryan 3:49
winning.

Jeremy 3:51
Yeah, so some of this data can be out of date by Well, at best case, a year or worst case, almost six years. Anyway, this chart here is showing the growth versus the percentage of renters so you can see the this horizontal axis down the bottom. Over to the right, you’ve got far more renters than owner occupiers. And back here, we’ve got no renters. This is just owner occupiers. And then on the vertical axis on the left, it’s the capital growth that occurred from 2016, which was the last census to when I calculated this these capital growth, which was 2018. So I think it was August 2016. So this is only over two year period, as you can see that the general trend is that the lower the number of renters the percentage of renters, the higher the capital growth. So if you have really high percentage of renters even over just a two year period, you’re going to get less less capital growth. Yeah,

Ryan 4:52
you have taught me Jeremy to not that is, you know, two years old or five years old that you This could just be this certain market at this certain time, or is this I guess this is National, right?

Jeremy 5:05
It is National. But you do have a point, it could have been at a particular era in Australia’s residential growth history. And this data might not show the same correlation to a different period. So very good point. So what I’ve done is I went back to the prior census, this is 2011. Now and we’re looking at seven years of capital growth instead of just two zeros a

Ryan 5:33
bit better than

Jeremy 5:34
Yeah, so. So this is another case. But again, you can’t just rely on this one chart, but it’s telling the same story, the lower the proportion of renters, the higher the capital growth. So I did this one more time, just from 2006 to 2018. This is a longer period of time. And you see how closely the relationship models that trendline there the dotted line? So there is an answer to this question. There is an ideal percentage of renters in a property and it’s it’s 00. The only landlord fighting over tenants, if there are owner occupiers. It’s because people want to live there. If there isn’t a rental property there. Well, you can supply one and your property will be in demand.

Ryan 6:23
Yeah, because people want to live there, but they can’t buy into it. So they would be happy to rent there.

Jeremy 6:29
Yeah, yeah, exactly.

Ryan 6:31
I’m shocked seeing this data, because I guess we’ve done so many videos where everything I thought was true, you debunked it. And now you’re kind of showing me something that could actually be an indicator of growth over the short to medium term, you know, this is going on 12 years data here. So is this something that you would factor in when looking at a property?

Jeremy 6:53
Yes, yes, it is I, I work at the suburb level, and then I’d have pick any property in that suburb. But it to me, once you’ve found that suburb, there’s 80% of you your job, at least 80%, maybe more 90% of your job is done. I don’t really write asset selection too highly. And I definitely use this metric to help me in choosing the best suburbs. So I don’t want to be in a suburb that has a high proportion of renters. But there are so many other metrics, you got to look at all look at more than 17. And this is just one of them. But it’s definitely with all the videos and to look at. Yes, yes, we’ve

Ryan 7:37
done a lot of videos correlation here on this graph. I’m like, Okay, yeah, as someone who’s looking to invest in the short term myself, this is definitely going to be a factor that I consider to say, Okay, do I want to invest in this suburb or not? And if the suburb has a high percentage of renter’s, then I’m definitely going to or away from that. And to look for suburbs with lower percentage of renters as well as a bunch of other factors as well. So I’m not like, I’m only going to buy in suburbs with 0%. renters because you got to overlay on that market timings, you know, the larger region, and then vacancy rates and so many other factors that we talked about in other videos, as well. But yeah, this I’ll definitely be considering this one.

Jeremy 8:21
Yeah. I’ve never found a suburb that had perfect metrics across the board. The proportion of renters was zero, the auction clearance rate was 100%. vacancy rate was, well, you can’t calculate it for zero renters. So yeah, you’ve you’ve got to weigh up well, which metrics are more important? So you’re never going to find a market? That’s, that’s perfect in every way. You are. If you do, it’ll be out of your price range or, yeah, so that’s not going to happen. And typically around Australia, the average is around about that. 30%. So most suburbs sit at about 30% 1/3 of the of the population are renting, roughly.

Ryan 8:59
And can you bench Why? Can you speculate why this might be the case? Like I have my ideas, but what do you think why do you think when there’s a low percentage of renters, you’ve got a higher chance of good growth?

Jeremy 9:12
Yeah, it’s a it’s a good question. I’m thinking that it’s probably because owner occupiers they take better care of their properties, they’re more likely to over capitalize on on renovations, a landlord isn’t going to do so for a rental property. And that’s, that’s my guess. But like you say, it is speculation.

Ryan 9:34
Well, that would be my speculation as well, because as someone who is a tenant, you’re not even allowed to do improvements on the property. And if you do, then there’s no return for you. Because once you move out, you know, the landlord still owns the property. So there’s no motivation for tenants to do that. And even if they have the motivation, you’re generally not allowed to do it. Whereas I’ve seen people who own their own homes, go and do renovations. And massively over capitalize on, you know what that property is actually worth if you were an investor, but then when it comes time for them to sell that property, you know, they’ve spent all this money on renovations that then lifts the value of that property lifts the value, then of the suburb as a whole. And if you’ve got a suburb where everyone’s living there, and owner occupiers, the chance of more people over capitalizing, renovating, keeping their property is probably going to be higher. But then again, as you said, that’s just speculation, you know, the data doesn’t Yeah,

Jeremy 10:32
well, there’s another another theory in that. If you’ve got a suburb full of investors, and they fall on hard times, maybe interest rates go up or the economy’s shuffling, they are more likely to offload than an owner occupied because they’re home. So they might hang on. And that means there’s no cascade, there’s no avalanche of falling property prices. So that that might be another, you know, speculation.

Ryan 11:01
Yeah. And I’ve actually done a video talking about how to find the percentages of public. I know, I found, you can find the percentages of owner occupiers versus renters, I think through micro burbz. Have you seen that website? Yes.

Jeremy 11:17
Yeah. Yeah, I know. I know Luke Metcalf quite well. He’s the the founder of microbead. scraped website.

Ryan 11:24
So I’m pretty like, how do you find I know you will probably have tools to find this data. But would you just recommend people go and census to find this data? We’ll go to Mike. Yeah, that’s,

Jeremy 11:34
yeah, that’s that’s where the data comes from. But it’s it’s easy enough to pick it up from our cupboards. There might be a few other websites that did show it. I can’t think offhand. But it’s pretty easy to get

Ryan 11:47
is basically what was Yes,

Jeremy 11:48
that’s right. Yeah, you don’t don’t pay for it. You don’t have to pay for it. Yeah, so

Ryan 11:53
definitely, if you’re out there looking at investing in a property, if you’re trying to find a suburb that is more likely to be high growth, less likely to be a low growth suburb, then definitely consider the percentage of renters as one of those factors in your journey, you can go ahead and check out this article that Jeremy has written, which goes into this in more detail, I’ll link to that down below. Or you can go to Select residential property.com.au. And see all of the articles that Jeremy has done debunking a bunch of myths around, you know, what indicates property growth, as well as showing us what are actually the factors that we should look at when looking to try and find high growth suburbs. So thank you so much, Jeremy, for sharing this. This is invaluable content to so many people.

Jeremy 12:40
Well, yeah, thanks for giving me the opportunity to just rave about property data.

Ryan 12:45
And there’s, there’s more to come and I can’t wait to a future episode with you talking about, okay, what are the key things to look for in a suburb But until then, me and Jeremy have done a whole series on these deep data dives looking at different factors. So I’ll link up to a playlist on that, go ahead and check that out. Otherwise, until next time, stay positive