Rents Rising. Supply Shrinking. Is This Creating a Window for Property Investors?
Australia’s housing shortage has been building for years, but recent changes to negative gearing and capital gains tax (CGT) have introduced another variable that could place even more pressure on rental supply.
While the long-term impact of these reforms remains debated, early market indicators suggest investor activity has slowed, development pipelines are coming under pressure, and rental markets remain exceptionally tight. For investors with a long-term outlook, this may present an opportunity that doesn’t come along often.
Investor demand has slowed
The Federal Government’s tax reforms mean that, from 1 July 2027, investors purchasing established residential property will no longer be able to negatively gear those properties, while changes to the CGT rules will also reduce after-tax investment returns. Existing owners are grandfathered, and new builds remain exempt.
Unsurprisingly, sentiment has shifted.
Banks, developers and property groups have all reported a noticeable reduction in investor enquiry since the announcements, with many buyers choosing to wait and see how the market responds.
Fewer buyers today could mean fewer homes tomorrow
Australia already faces a significant housing undersupply.
The National Housing Accord targets 1.2 million new homes over five years, yet the industry is already struggling with labour shortages, planning delays and construction costs.
Recent updates from major listed developers suggest conditions have become even more challenging.
- Stockland reported July home sales were down 32% compared with a year earlier.
- The company expects fewer housing settlements this financial year.
- Mirvac has also highlighted weaker investor demand and warned that reduced confidence makes it harder to bring new projects to market.
The development industry relies heavily on pre-sales to secure project finance. If fewer investors are purchasing off the plan, fewer developments are likely to commence, reducing future housing supply.
Rental pressure is unlikely to disappear
Australia’s vacancy rates remain near historic lows and rental demand continues to outstrip supply.
SQM Research data shows advertised rents across the capital cities have already increased around 7.2% over the past year, with the average weekly rent reaching approximately $796.
Following the tax changes, modelling from Ray White and NAB received significant attention by suggesting rents may ultimately need to rise by around 30% to restore investor yields if property prices remained unchanged. Importantly, both organisations later clarified this was scenario modelling rather than a forecast.
Most economists expect rent increases to continue, although the magnitude will ultimately depend on supply, demand, affordability and future property prices.
Less competition can create opportunity
Periods of uncertainty often reduce buyer competition.
When investors pause, buyers generally have:
- More properties to choose from.
- Greater negotiating power.
- Less competition at inspections and auctions.
- More time to undertake thorough due diligence.
These conditions rarely last indefinitely.
Once confidence returns, competition generally increases, making it harder to secure quality assets on favourable terms.
The fundamentals remain intact
Despite changing tax settings, the long-term fundamentals supporting Australian residential property remain largely unchanged:
- Strong population growth.
- Ongoing housing shortages.
- Tight rental markets.
- Limited new housing supply.
- Continued demand for quality accommodation.
While tax policy can influence investor behaviour, supply and demand continue to be the primary drivers of both rents and long-term property values.
For investors focused on quality assets over the long term, today’s softer sentiment may represent a buying window where competition has eased, even though the underlying housing fundamentals remain firmly in place.
As always, every investment decision should be based on individual circumstances, independent advice and careful research. However, history has consistently shown that some of the best opportunities emerge when market sentiment is weakest rather than strongest.