Concerns are growing across the property sector that proposed changes to property investment taxes could place even greater pressure on rental affordability at a time when vacancy rates are already critically low in many parts of the country.
Major property industry groups are warning that rents may increase far more sharply than current government forecasts suggest if investor participation in the housing market declines.
New modelling released by Master Builders Australia, the Property Council of Australia and the Real Estate Institute of Australia argues that the Federal Budget housing measures could lift rents by around $9 per week, significantly higher than the government’s estimate of approximately $2 per week. Other market analysts believe the impact could be even more substantial in selected locations, with research platform FoundIt predicting rental increases in some suburbs could reach as much as $50 per week within the next 12 months if supply conditions continue tightening.
The analysis suggests several factors are combining to create upward pressure on rents simultaneously. Many rental markets are already experiencing strong momentum following years of population growth, limited housing supply and rising construction costs, while vacancy rates remain extremely tight across large parts of the country, particularly in affordable housing segments. At the same time, higher interest rates are increasing holding costs for property investors, with mortgage repayments, insurance premiums, maintenance expenses and council rates all rising substantially over recent years. In many cases, landlords are attempting to offset part of those increased costs through higher rents where market conditions allow.
The concern from industry groups is that proposed changes to negative gearing and capital gains tax settings could further discourage investment activity, reducing the future supply of rental housing. Property investment has traditionally played a major role in supplying rental accommodation throughout Australia, so if fewer investors purchase properties, the available rental pool may shrink further at a time when demand remains elevated. FoundIt’s research suggests this could intensify competition among tenants, particularly in markets already experiencing severe undersupply, with the company noting that current rental growth momentum is likely to continue because supply shortages remain unresolved in many areas. Rising financing costs and increasing construction expenses are also contributing to slower housing delivery nationwide, while investors facing higher ownership costs may continue passing at least some of those expenses on to tenants through rent increases.
The latest Market Insight report from realestate.com.au has also raised concerns about the potential impact of proposed tax changes on rental supply. REA Group senior economist Angus Moore says restricting negative gearing and capital gains tax discounts primarily to new builds may not necessarily increase supply in the locations where rental demand is strongest, meaning some regions may continue facing shortages even if incentives encourage construction activity elsewhere. The broader issue remains Australia’s ongoing housing undersupply, with population growth accelerating sharply in recent years due to both overseas migration and interstate movement, while construction activity has struggled to keep pace because of labour shortages, rising material costs and planning delays.
That imbalance between demand and supply has created extremely competitive rental conditions across many cities and regional centres. Tenants are increasingly facing limited choice, rising rents and greater competition when applying for properties, and in some locations prospective renters are attending inspections alongside dozens of other applicants, further placing upward pressure on prices. Brisbane, Perth and Adelaide have all experienced particularly strong rental growth in recent years because population growth has significantly outpaced available housing supply. Perth continues recording some of the lowest vacancy rates in the country, while Brisbane’s rapid interstate migration has added further pressure to already constrained rental markets.
Regional areas have also been affected, with lifestyle destinations that experienced strong migration during and after the pandemic continuing to face limited rental availability. In many regional towns, new housing supply has struggled to keep pace with growing demand from both residents and investors, further tightening conditions outside the major capitals. For governments, balancing affordability with investment incentives remains a difficult challenge, as there is strong political pressure to improve housing affordability and support first-home buyers, but reducing investor participation too aggressively risks creating unintended consequences for rental supply. Housing markets rely heavily on private investment to deliver a large proportion of rental accommodation nationally, and without sufficient investor activity, the burden on social housing and government-funded housing programs increases significantly.
At the same time, simply relying on investors alone is unlikely to solve the broader affordability crisis. Industry experts increasingly argue that a combination of solutions will be required, including faster housing approvals, increased land supply, infrastructure investment, modern construction methods and planning reform. Build-to-rent developments are also receiving growing attention as a potential long-term solution, with supporters arguing these large-scale rental communities can provide more stable rental supply over time, although the sector is still relatively small in Australia compared to overseas markets.
For tenants, the immediate outlook remains challenging, with limited supply, population growth and rising ownership costs continuing to support rental increases across many parts of the country. For investors, conditions remain attractive in many markets because tight vacancies are supporting rental returns despite higher interest rates. The debate surrounding property investment taxes ultimately reflects a broader issue facing the housing market nationally: Australia needs significantly more housing supply. Until supply levels improve meaningfully, affordability pressures are likely to remain a major challenge for both renters and buyers.
