New analysis from NAB suggests that changes to property tax laws enacted by the Albanese government could lead to a significant increase in rental prices, potentially by as much as 30%. The reforms, which restrict negative gearing to new builds and alter capital gains tax rules, were presented by the government as a measure to improve housing affordability for first-time homebuyers. However, NAB's forecast indicates that to maintain investment returns, landlords may need to raise rents substantially.
In major cities like Sydney and Melbourne, NAB predicts gross rental yields could rise from approximately 3.5% to 4.5%. If property prices remain stable, this would necessitate rent increases of 25% to 30%. For existing median rents, this translates to an additional $250 per week in Sydney and $190 per week in Melbourne, amounting to nearly $13,000 and $10,000 annually, respectively.
These potential rent hikes occur amid existing pressures on the rental market, including high immigration levels and barriers to new construction, which have led to demand outstripping supply. NAB's analysis suggests a market reset where tenants face either significantly higher rents or the risk of purchasing property in a declining market.
Treasurer Jim Chalmers has publicly dismissed NAB's findings as speculative and incomplete. The Treasury has projected that the tax changes will only add about $2 per week to rental costs. However, critics argue that investors will seek competitive after-tax returns, and if these are not met, they may withdraw from the market, further tightening supply and increasing competition among tenants.
Evidence from Equifax indicates a downturn in first-homebuyer activity, with mortgage applications falling 19.2% in the year leading up to July. Enquiries from younger age groups have also declined sharply. This data contradicts the government's stated aim of assisting younger Australians into homeownership, as the prospect of buying into a falling market, especially with schemes requiring low initial deposits, presents considerable financial risk. Homes typically take years to plan and build, meaning the supply-side benefits of the new construction carve-out may not materialize until long after investors have shifted their capital elsewhere.
The policy's unintended consequences could disproportionately affect younger Australians, low-income workers, singles, and families who are more likely to rent. Furthermore, higher rental costs can contribute to inflation, potentially complicating the Reserve Bank's efforts to manage interest rates. The situation has drawn criticism that a policy intended to improve affordability could, in effect, make both renting and borrowing more expensive.