Why investors don’t really drive Australia’s property prices

The political argument is that investors drive up house prices and make home ownership less affordable for everyone else.

While there are periods of time and specific locations where investment activity has been stronger than normal, it is still overwhelmingly the case that owner-occupiers dominate Australia’s property market and are the group that has the biggest influence on property prices nationally.

The research shows that the strongest capital growth over time is consistently in markets where owner-occupiers dominate.

Cotality data supports that conclusion. It shows that units in owner-occupier-dominated suburbs increased in value by 99 per cent between 2010 and 2026. Comparable units in investor-heavy suburbs rose by only 65 per cent. In the house market, suburbs where owner-occupiers were more dominant also recorded higher growth than the markets popular with investors.

Owner-occupiers are often buying with their hearts and will pay more to secure a house or unit if they fall in love with it.

Homebuyers will also buy over the odds to buy properties in locations with specific attractions. School zones are a great example of that; homebuyers will pay considerably more for a house in a good school catchment.

Investors, however, typically buy on the numbers and are less driven by emotion or prestige.

Avoiding the blame game

So, what’s the message for investors?

It’s the same as it has always been – treat property investment like a business and look at the research data. Don’t get caught up in the buying frenzy that can result from owner-occupiers bidding for their dream home.

Investors should be more price-sensitive because the numbers have to work. Rental yields, interest rates, taxation and cash flow all matter.

It doesn’t matter how nice the property is, if prices become too high relative to rental income, investors should look elsewhere.

Blaming investors for driving up property prices has always been politically convenient because it diverts attention away from the government’s policy failures.

In reality, housing affordability has deteriorated because Australia hasn’t built enough homes to accommodate rapid population growth and changes in household formation.

Planning delays, excessive taxation, restrictive zoning, escalating construction costs and bureaucratic obstacles have constrained supply for years.

None of this means that investors have no impact on prices. But the evidence indicates they are followers far more often than leaders, particularly in established markets. They tend to respond to price movements rather than create them.