Rents in Australia are projected to increase by nearly 30 percent within the next two years, primarily due to tax changes implemented by the Albanese government, according to a new warning from National Australia Bank (NAB).
The bank's analysis suggests that landlords will require higher yields to offset the reduction in the capital gains tax discount and changes to negative gearing policies, which were detailed in the Federal Budget in May. Gareth Spence, Head of Australian Economics at NAB, stated in a client note that the revised tax settings for property investors imply a necessary rise in gross rental yields to compensate for the diminished tax benefits.
NAB's modeling indicates that for investment properties in Sydney and Melbourne, a one-percentage-point increase in rental yield, from approximately 3.5 percent to 4.5 percent, would translate to a 25 to 30 percent rise in rents, assuming property values remain constant. This forecast stands in stark contrast to the Treasury's estimate, which predicted the tax changes would only increase rents by about $2 per week this year.
Further supporting the upward trend, Louis Christopher of property analytics firm SQM Research stated that rents could climb between 15 and 30 percent as investors seek to recoup lost income. He noted that a 1 to 1.5-percentage-point increase in yield would be necessary for investors, equating to a roughly 30 percent rent increase. Christopher added that even if the financial impact is split between lower housing prices and higher rents, a 15 percent increase is still likely. He also highlighted that such a substantial increase in rents would contribute significantly to inflation, given that rent is a major component of the consumer price index.
In Queensland, property developer and manager David Laverty reported that rents have already seen a 10 percent increase, with expectations of further growth. He observed that rents are escalating more rapidly than many realize, particularly in areas like southeast Queensland with low vacancy rates. Laverty cautioned that official data might lag due to regulations governing when rent adjustments can be legally implemented.