Negative Gearing Reform and Rents: What the $2 Per Week Figure Is Actually Being Measured Against
The Government's modelling puts the rent impact of negative gearing reform at less than $2 per week. Here is what that figure is actually being measured against and why the supply assumptions it relies on don't hold up.
The Government's modelling says the negative gearing reform will push rents up less than $2 per week above their baseline trajectory. That figure is not being examined closely. Before we look at what it is being measured against, one thing is worth noting clearly.
Rents are already rising. That is not because of this reform. The reform has not yet taken effect. What this reform does is add pressure to a rental market that is already stretched. The impact flows through gradually as leases expire and properties return to market. It is lagged, rolling, and persistent. Not a single overnight shock caused by the announcement.
With that framing in place, let's look at the baseline.
According to SQM Research, as of April 2026 national rents are growing at 6.6% year on year. The national combined median sits at $688 per week. The national vacancy rate is 1.2%, well below the pre-COVID decade average of 2.5%. Rents are rising at close to double the pace of wages, which grew at 3.4% annually through Q4 2025 according to the ABS Wage Price Index.
On a $688 per week national median, 6.6% annual growth equates to roughly $45 per week in additional rent annually. In Sydney, renters are already paying $72.50 more per week than a year ago. In Brisbane, $54 more per week. In Perth, $50 more per week.
The reform has not yet taken effect. Rents are already rising well beyond $2 per week in virtually every market in the country. That is the baseline the modelling is building on top of.
It is worth acknowledging that most states now have legislation governing how frequently rents can be increased and in some cases by how much. Those frameworks do not prevent rent growth. They shape the timing and pace of it. Renters have already absorbed significant increases over the past three years within those constraints. The $2 figure sits on top of that lived reality.
Because housing is not a discretionary expense. Roughly one in three Australian households rent their home and that share continues to grow as home ownership becomes less accessible. Rent growth that outpaces wages year after year is not an abstraction. It is a lived reduction in living standards.
The $2 per week figure is a modelling assumption, not a guarantee. It assumes the baseline rental market remains stable. It is already not.
The $2 per week assumption has two problems.
The Government's $2 per week figure relies on two assumptions. Here is where they break down.
The modelling assumes new build supply offsets the reduction in established property investment. But these are not interchangeable products. New builds are built where land is cheap and development is viable. That typically means the urban fringe, greenfield estates, and outer ring towers. A renter needing access to existing schools, hospitals, and employment corridors cannot substitute a house and land package on the urban fringe.
The supply shortfall in established rental markets is not a new problem. Planning delays at state level and sustained high migration at a national level have been compressing vacancy for years. New supply has not kept pace. The reform reduces the incentive to supply rental housing into a market that is already running a structural deficit.
There is a further behavioural consideration. Negative gearing provided an indirect buffer on rent levels. Investors able to offset losses through tax had less pressure to maximise rental income. Remove that buffer and the incentive to accept below-market rent diminishes. Investors carrying a loss without the tax offset have a stronger reason to push rents toward whatever ceiling state-based legislation allows. Supply and demand remains the primary driver. But this is an additional mechanism for upward pressure that the $2 modelling does not account for.
The second assumption is this. Even if the reform triggers an investor sell-off, which is far from certain, the rental pool does not stay whole. Every established property that transfers from investor to owner-occupier removes one dwelling from private rental supply permanently. The total housing stock stays the same. The rental supply does not.
Australia has no institutional rental sector of meaningful scale. Build-to-rent exists in Australia but remains a fraction of the rental supply needed to substitute for private investor stock. Government housing has declined as a share of total stock for decades. The private rental market exists because individual Australians fund it. There is no alternative supply base waiting to absorb what policy removes.
I have seen this firsthand. We were a share house of four, one couple and two singles, and the property sold to an owner-occupier. We didn't find one alternative between us. We moved into three separate dwellings. One rental property leaving the market created demand for three. That is what supply contraction looks like at street level. This is not a commentary on landlord behaviour. It is a structural observation about what happens to demand when supply shrinks.
The cohort most exposed to rising rents is also the cohort the Government says it is trying to help into home ownership. Renters saving for a first home deposit are saving against a rising cost of living. Every additional dollar paid in rent is a dollar not saved toward a deposit. A policy designed to improve housing accessibility that simultaneously reduces the incentive to supply rental housing makes the first step harder, not easier.
That pressure is not evenly distributed. The markets where rental supply is tightest are also the markets where the reform's assumptions are hardest to defend.
In Greater Geelong, house rents have grown $17 per week over the past year, a 3.4% increase. Vacancy sits at 1.2%. In Greater Bendigo, $28 per week, a 5.9% increase. Vacancy sits at 1.1%. In both markets vacancy rates have been falling over the past 12 to 18 months, with rent growth following. This is supply and demand.
A balanced rental market typically runs between 1.5% and 2.0% vacancy. At that level renters have genuine choice. They can be selective on price, location, and condition. Landlords compete for tenants. Below 1.5% that dynamic reverses. Supply is tight, competition among renters increases, and pricing power shifts to the landlord.
Both markets are running well below that and the rental pressure is still building. Renters represent around 28% of households in each Local Government Area (LGA). These are not speculative markets or outer fringe estates. They are established regional centres with genuine owner-occupier demand and tight rental supply. The reform reduces the after-tax incentive to supply rental housing into exactly these kinds of markets.
The dynamic is not unique to Australia. A recent case study shows what happens when the after-tax incentive to supply rental housing is reduced into a market already under pressure. New Zealand removed interest deductibility for investors in March 2021. Rents were growing at 4.7% per year before the change. That rate accelerated to 6.8% annually after it. The policy was reversed within three years. Significant interest rate rises occurred over the same period but the new government's own language on reversal was unambiguous.
When the incentive for private investors diminishes, so does rental availability. In a market already at 1.2% vacancy, with rents growing at double the pace of wages, and with new build supply concentrated away from where tenant demand is strongest, the margin for error is thin.
The impact will not be immediate. As leases roll off over the next 12 to 18 months and the reform takes effect from 1 July 2027, the pressure builds within whatever state-based rental increase frameworks apply. The market feels it gradually but it feels it.
A useful filter: look at vacancy rates in the specific markets you care about, not the aggregate modelling. Where vacancy is already below 1.5% and rent growth is outpacing wages, the assumption that new build supply will absorb the shortfall deserves serious scrutiny.
None of this changes the fundamental case for residential property investment. The structural drivers of long-term capital growth are unchanged. For existing and new investors, rising rents mean improved yields and stronger cashflow.
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Disclaimer: The information in this article is general in nature and does not take into account your personal objectives, financial situation, or needs. It is not financial, legal, or tax advice. The Nelis Group accepts no liability for actions taken based on this content. You should seek independent advice from a relevant licensed professional before making any decisions.
Data sources: Australian Government Budget 2026-27, Negative Gearing and Capital Gains Tax Reform Factsheet, Treasury modelling. SQM Research monthly vacancy and rent data, April 2026. ABS Wage Price Index, Q4 2025. Htag Analytics rental growth data, current at date of publishing. Vacancy rate data from SQM Research. New Zealand rent growth data sourced from publicly available commentary citing IRD and REINZ data.
