Key takeaways
New research shows that Labor's negative gearing reforms will cost tenants considerably more, as rents will rise substantially.
Negative gearing changes may reduce the supply of established rental properties in desirable suburbs.
Housing supply remains the real issue. Changing who owns existing properties doesn’t create more homes.
New property isn’t automatically a better investment. Tax incentives should never outweigh location, scarcity and long-term capital growth potential.
Property markets will become more fragmented. Strategic property selection will matter more than ever.
The long-term fundamentals remain strong. Population growth, household formation and land scarcity will continue supporting well-located Australian property.
There is a dangerous tendency in Australia’s housing debate to assume that anything that makes life harder for property investors must automatically make life easier for first-home buyers and tenants.
It's a good political argument that sounds appealing, particularly when housing affordability is such an emotional issue, but housing markets don’t work in isolation.
Investors, homeowners, tenants, developers and first-home buyers are all participants in the same housing ecosystem, and when government policy changes the incentives for one group, the consequences inevitably flow through to everyone else.
That's why the Federal Government’s changes to negative gearing deserve closer attention.
From 1 July 2027, investors purchasing established residential properties will no longer be able to offset rental losses against unrelated income such as wages.
Those losses can instead be carried forward or offset against other residential property income, while eligible new properties will remain exempt.
The intention is clear: encourage investors to direct their money towards new housing rather than competing with homebuyers for established properties.
On the surface, that may make sense. The problem is that property markets have a habit of responding to incentives in ways policymakers don’t always anticipate.
Could renters pay the price?
New modelling from MCG Quantity Surveyors and SuburbTrends, reported by realestate.com.au, analysed around 180,000 rental listings and found Labour’s negative gearing reforms will cost tenants up to $24,700 a year in parts of Sydney – on top of recent, explosive rises in rents since the changes were announced with the May budget.
Note: The forecast result was a for significant reduction in cheaper rental options, with much of the scant fresh rental stock coming to market being brand new homes that charge a “new build premium”. Tenants would be pushed into renting pricier new housing, the report said.
The report found newly built homes already command an average rental premium of around $65 a week nationally compared with established properties.
In parts of Sydney the difference is considerably greater, with the modelling suggesting new properties in some eastern suburbs can cost around $24,700 more per year to rent than comparable established accommodation.
Now I wouldn’t interpret that figure as meaning Sydney tenants are suddenly going to receive a $475 a week rent increase because of negative gearing changes - markets are much more complicated than that, and affordability ultimately limits what tenants can pay.
However, it highlights an important structural issue - if investors are encouraged away from established properties and towards new dwellings, Australia’s rental stock could gradually change.
There may be fewer investor-owned established properties available in the middle-ring suburbs where many families want to live, while more rental supply could be concentrated in new apartment precincts and outer suburban growth corridors.
That matters when Australia already has very little spare rental capacity and population growth continues to add demand.
We still need more homes
I’ve argued that tinkering with property taxes is unlikely to solve Australia’s housing affordability problem because the fundamental issue is an undersupply of the right type of housing in the right locations.
- Also read:Property Investors: Don’t Be Fooled by August’s Rental Figures | Property Insiders
- Also read:Latest Property Price Forecasts. Australian Property Market Outlook 2026-2027: Navigating a Market Correction
- Also read:This week’s Australian Property Market Update – Latest Data, State by State September 8th 2026
- Also read:National Weekly Auction Report – September 5th 2026 | Positive Auction Start to Spring for Melbourne and Sydney
- Also read:National Property Listings Ease in August but Remain Well Above Last Year | Latest SQM Listing Data
Changing negative gearing may alter who owns a particular property.
For instance, an investor may sell an established home to a first-home buyer, which is clearly beneficial for that buyer, but the transaction itself doesn’t create another dwelling.
One household moves from renting into ownership while the former rental property disappears from the rental pool.
Directing investors towards new construction could help increase housing supply, but significant obstacles remain, including planning delays, infrastructure shortages, high construction costs, labour shortages, and development projects that simply don’t stack up financially.
That is why housing policy needs to focus much more heavily on increasing supply rather than simply redistributing the homes we already have.
What does this mean for investors?
I suspect the next decade will create an increasingly fragmented property market, which means investors will need to become considerably more selective.
Some will be tempted to chase tax advantages by buying new properties, but tax benefits should never be the primary reason for purchasing an investment.
Many new developments are located in areas with abundant future supply, relatively homogeneous properties and limited owner-occupier appeal, all factors that can restrict long-term capital growth.
At Metropole, we’ve always believed investment-grade property should be selected primarily for its long-term capital growth prospects, driven by scarcity, strong owner-occupier demand, desirable locations and the demographic capacity of local residents to keep pushing property values higher over time.
Tax considerations come afterwards.
The long-term picture remains positive
Australia’s housing market continues to be supported by powerful long-term fundamentals.
Our population will keep growing, households will continue forming, desirable land in our major capitals remains scarce, and Australians will continue aspiring to own their homes.
Governments will keep changing the rules along the way, just as they have throughout my more than five decades of investing, and markets will adjust.
Rather than fearing these changes, strategic investors should recognise that periods of disruption tend to widen the gap between average properties and genuinely investment-grade assets.
That makes careful property selection, sound financial structures, and a long-term perspective more important than ever.
