The most important tax tip you need right now + Nvidia shares

Hi everyone,

Happy Friday. A short week after the King’s Birthday long weekend seemed to condense a lot of information into just four days.

As usual, there is a lot happening:

• Unemployment worries are on the backburner… for now

• Superannuation funds were up in May and annual returns look good

• Major shock: rents are actually dropping. But is it sustainable?

• The supply and demand equation for property

• Why aren’t we building more apartments to solve the housing crisis?

• The most important tax tip you need right now

• How long Nvidia took to reach a $US3 trillion valuation will surprise you

Unemployment worries on the backburner… for now

As you know, I’ve been a bit wary of the recent spike in unemployment, but yesterday’s 4 per cent rate for May was good news. It dropped from 4.1 per cent in April which means the Reserve Bank can focus on bringing down inflation without being distracted by job losses in a weakening economy.

If you look at the details in the figures, the tick down from April was again due to the timing of hiring and job gains, with the ABS noting “some of the fall in unemployment and rise in employment in May reflects these people starting or returning to their jobs”.

The underemployment rate (where employed people would like more work) remained at 6.7 per cent in May, but since September the female underemployment rate has risen from 7.2 per cent to 8.2 per cent. In contrast, the male underemployment rate has declined from 5.7 per cent to 5.3 per cent over the same period.

Australia has more adults working than almost any country in the world. The “participation rate” is close to the record high of 67 per cent.

Super fund returns up in May

Investment markets improved in May following April’s losses. Equities stabilised and, as a result, average balanced superannuation fund returns rose 1 per cent according to research house SuperRatings. In April they lost 1.6 per cent in value.

The median growth option grew by an estimated 1.1 per cent for May, while the median capital stable option, rose by a more modest 0.6 per cent.

With just a month left in the financial year super funds are on track to deliver an annual return in the high single digits. That will be slightly down on the previous year but ahead of 3, 5, 7 and even 10-year averages.

So despite the rollercoaster and angst in investment markets, our super funds have done pretty well over the year.

Pension returns followed a similar pattern, with the median balanced pension option increasing by an estimated 1.1 per cent. The median capital stable pension option is estimated to rise 0.7 per cent over the month, while the median growth pension option is estimated to rise 1.2 per cent.

Shock: rents have come down

According to SQM Research, capital city asking rents have actually fallen in the last 30 days to 4 June by 0.5 per cent. Before we get too carried away thinking this is the start of a sustained fall, rents often soften at the start of winter.

But it does make you wonder whether the steep rise in rents over the last 2 years has reached a tipping point which is changing behaviour. Have rents skyrocketed so much that some tenants are moving back in with parents or moving into shared premises?

Exorbitantly expensive Sydney rents drove the capital city decline, falling by 1.1 per cent to $844 a week. Darwin recorded the largest monthly decline, falling by 6.3 per cent to $566 a week, while Melbourne rents were unchanged at $635 a week. Adelaide recorded a fast rental rise with advertised rents rising by 2.1 per cent to $593 per week.

The national median weekly asking rent for a dwelling is now $624 per week. Sydney continues to have the highest weekly rent for a house at $1,050 per week, while Hobart offers the most affordable unit rents among the capital cities at $463 per week.

That’s the price side of the rental equation. On the supply side the rental vacancy rate increased in Sydney to 1.4 per cent and also in Melbourne to 1.3 per cent and Canberra to 1.8 per cent.

Perth and Adelaide shared the equal lowest vacancy rate at just 0.6 per cent.

Rental vacancy rates in the Sydney CBD, Melbourne CBD, Canberra CBD and Brisbane CBD all recorded large rises, indicating that demand for inner city student rental accommodation is currently easing.

The supply and demand equation in the current property market

I know you’re absolutely sick of me saying property is all about the balance between demand and supply… but it really is that simple.

This chart from CoreLogic’s Head of Research Eliza Owen beautifully sums up why the different property markets in Australia are performing the way they are.

At one end of the spectrum is Perth, with total listings sitting 45 per cent below its average stock (listings for sale) levels, and a monthly capital growth rate in values of 1.8 per cent. At the other end of the spectrum is Hobart, where there are 39.5 per cent more listings than the historic 5-year average for this time of year, and as a result home values are 0.5 per cent lower.

The additional supply in stock across areas like Victoria and Tasmania means vendors have to bring down their price expectations, and that brings values down.

So that supply/demand equation is where professional property analysts, like Eliza, start their assessment. Then they add in any other unique aspects driving individual markets.

Lower property price points across Perth, Adelaide and parts of Brisbane continue to drive buyers, even under high interest rates. Interstate migration remains particularly strong in QLD and WA, and income relative to home values (their affordability) is also more reasonably matched in Perth.

On the supply side, there has been more of a build-up in new listings than usual across Victoria, even where home value performance has been relatively soft. Victoria has also had more new dwellings built than any other state and territory in the past ten years, keeping a lid on price growth.

Is the quickest solution to our housing crisis to build more home units?

I know there is always great local debate about changes in council zoning laws to allow construction of apartment complexes. Many people don’t want to see their suburb of traditional housing blocks changed into medium or high-density housing.

But Ray White chief economist Nerida Conisbee makes a strong argument that we need to build more apartments to solve the housing shortage.

This graph shows the size of the average Australian household has dropped significantly since the 1980s. So why do we need the traditional 3–4-bedroom house on a big block when on average we only have 2.5 people living in the property?

And compared with the rest of the world Australia has very low levels of housing density.

Whereas in London, Singapore and Hong Kong, more than 80 per cent of homes are either apartments or townhouses, Sydney has just 46 per cent. Hobart has extremely low levels with just 15 per cent of all homes being units.

And, as Nerida explains, while comparing London to Hobart may seem unfair, even comparing our cities to smaller cities around the world, our densities are extraordinarily low. In the US, the least dense small city in the country is Norman, Oklahoma and even there, close to 35 per cent of homes are units.

Last decade we got a lot better at building density. So much so that in the 12 months to August 2016, more than half of residential building approvals were high density. A loss of foreign investment led to that plummeting towards the end of last decade. It picked up slightly in the pandemic but we are now seeing a downward trend once again.

Over the past year, only 37 per cent of homes approved have been units. As a result, we are not on track to get more homes built where people want to live. 

By city, the only place that is now consistently building more units than houses is Canberra. Over the past decade, more than three times more units have been approved than houses.

New South Wales is now building more units than houses, however the gap is comparatively small. In Hobart, only 10 per cent of all homes approved have been units. In areas where a lot of units are built, there is better affordability for both buyers and renters.

 The uncomfortable reality for many is that we are going to have to get used to living in much smaller homes to achieve affordability. Even now with relatively low densities, most cities have affordable units, but not affordable houses.

A first home buyer in Melbourne could afford a unit in Collingwood at $650,000 but would struggle to buy a house where the median is close to $1.2 million. In Brisbane, a median priced apartment in Paddington is $620,000 compared to a house at $1.75 million.

With the exception of inner Sydney, the majority of suburbs with apartments across Australia have affordable homes available, as long as those homes aren’t a house. 

And the simple fact is, we won’t achieve 1.2 million new homes we need to build over the next five years if the majority of them are single detached dwellings. Larger homes are more expensive to build and urban sprawl is expensive to adequately service.

You can’t create more land in desirable suburbs but you can build more homes there if you build upwards or build homes closer together. We also don’t need to keep building bigger homes as household types are changing.

As a proportion of total households, single-person households will be the biggest growth area over the next decade. Average household sizes will continue shrinking. 

Nerida Conisbee makes a really compelling argument, doesn’t she?

The most important tax tip you need to know

Over the last 40 years I reckon I’ve interviewed every Tax Commissioner at some stage. I’ve asked every single one of them what they think is the biggest mistake taxpayers make when it comes to challenging an ATO decision. The answer has always been the same: bad record keeping.

The ATO doesn’t usually even have to argue their position because the records of taxpayers are so bad they don’t have the proper evidence to back up their point.

A recent study by accounting software group Intuit QuickBooks found that while 93 per cent of Aussies still collect physical receipts to claim back at tax time, lost or damaged receipts are causing us to miss out on a potential $7 billion in unclaimed deductions across the nation.

The majority of Australians (59 per cent) admit to having lost receipts, while 47 per cent had promised themselves they would store receipts better this year but haven’t done so. These findings suggest the experience of ‘receipt regret’ is widespread among Aussies at tax time.

The struggle to sort through a pile of receipts and (quite literally) piece together your year in a last-minute scramble has become a dreaded chore for many ahead of tax time. Despite their intentions, over a third (42 per cent) of survey respondents sometimes or always forget where they’ve stored their receipts, with 15 per cent spending up to a whopping five hours sorting through them in the lead up to tax time.

I can certainly relate to that.

The survey revealed that many receipts have met a watery end, with 22 per cent of Aussies reporting to have lost a receipt to the washing machine. Other receipts have met a smelly fate with 13 per cent admitting to having fished them out of the bin. Almost half of survey respondents (46 per cent) have had to deal with faded, torn or illegible receipts, and more than half (59 per cent) have lost receipts completely.

In a cost-of-living crisis where every dollar counts, it’s no surprise that almost a quarter of Aussies are looking forward to doing their tax return this end-of-financial year in the hope of getting money back. Nearly 1 in 5 admit that the main motivation to submit their taxes is to ‘see if I can get a tax rebate’.

Aussies can make tax time less stressful by using tech to their advantage to make a digital copy of receipts as soon as they are received. The trick is to strike while the admin is hot and you’ll save yourself from receipt regret at tax time.

The ATO has a great feature on its app where you can capture receipts throughout the year, and this uploads directly to your tax return.

The surprising amount of time it has taken Nvidia to become the world’s second most valuable company

The value of US-based manufacturer of AI computer chips Nvidia continues to skyrocket and wow investment markets. Last week, Nvidia’s share price continued to surge to the point where its value leapt over Apple – and just slightly behind Microsoft – with a valuation of more than US$3 trillion.

Nvidia’s stock surge has been so remarkable that the company reached a $3 trillion market cap only a few months after reaching the $2 trillion milestone… and just over a year after reaching a $1 trillion market cap.

That is a phenomenal achievement. And you’d think it was an incredible overnight success story.

But while Nvidia has been a market darling for the last two years, the company has been around for a lot longer, building its technology. The fact is that it is no overnight success.

Time it took to reach a $3 trillion valuation:

Microsoft:  48 years, 9 months
Apple:        45 years, 9 months
Nvidia:        31 years, 2 months

With that in mind, if you’d invested $1000 in Microsoft’s IPO on the stock market 48 years and nine months ago, what would it be worth today? Or for that matter $1000 about 45 years and nine months ago in Apple or 31 years and two months ago in Nvidia?

Bloomberg did the sums and compared it with other company floats. It’s a fascinating comparison but remember that return has been made over varying time frames depending on the stock.

Here’s what $1,000 invested in key IPOs would be worth today:

Microsoft: $4,301,600
Nvidia: $4,258,760
Amazon: $2,410,000
Apple: $1,899,800
Netflix: $540,567
Nike: $510,573
Costco: $484,868
Starbucks: $234,802
Tesla: $158,619
Salesforce: $99,015
Domino’s Pizza: $35,869
Shopify: $33,512
Visa: $24,954