Saturday, August 09, 2008

The Rich Don't Focus on Real Estate

The Australian data above from the Tax Review as well as US data I've seen before refute a myth popular in get rich quick circles that the rich focus their investments in real estate. The table shows that only 4% of rental income is received by the richest 1% of income earners which is less than their share of salaries - 5.3% (i.e. salary income is 5.3 times average salaries in the top 1% of taxpayers). The bottom 20% of income earners collected 18.8% of rental income compared to their 2.4% share of wages. The bottom 50% of the income distribution share of rent was twice their share of salaries.

OTOH the richest 1% had 38 times the average level of capital gains and and 35 times the level of dividends. Their business and partnership income was 22-23 times the average. The lowest quintile lost money in business.

The truth is that people mostly get rich from incorporated or unincorporated business and mostly invest their wealth in businesses not in real estate. The average landlord is right in the middle of the income spectrum. The average stockholder (weighted by shares held) in the top couple of percent.

3 comments: said...

I wonder if that was measuring gross income or net income? For example, my investment real estate is neutrally geared, so I get no net income from real estate, but it will provide significant capital gain income when I sell it.

finance girl said...

I definitely believe that. We have our rental house only because it was the house I had bought prior to meeting husband, and we thought it'd be a great diversifier for retirement income.

So far, so good, but it's not like I am living large off the proceeds.

Actually it just barely breaks even after factoring gardener but that's ok.

mOOm said...

Enoughwealth - I did wonder about that, though as most landlords lose money in Australia - in all ACT postcodes I think for example - I'd guess it is gross income. But that doesn't affect my point unless richer landlords are more likely to lose money from real estate than poorer landlords.

Financegirl - from that table we don't know how much of each group's income comes from real estate only how much they earn from that category relative to the amount an average income person earns from that category. So rental income is the most evenly distributed across society. More so than wages. While capital gains is the least evenly distributed.