Labor's Negative Gearing Reforms: What Borrowers Should Know
From July 2027, investors in established homes can no longer offset rental losses against wages — and Sydney renters could face up to $24,700 more a year.
What's actually changing — and when
Australia's housing tax landscape is about to shift in a meaningful way. From 1 July 2027, investors who purchase established residential properties will no longer be able to offset rental losses against unrelated income — such as wages or salary. Those losses can still be carried forward or offset against other residential property income, but the broad deductibility that has defined negative gearing for decades will be gone for established dwellings.
Crucially, new properties remain exempt. As Property Update reports, the policy intent is to redirect investor capital toward new construction rather than competition with owner-occupiers for existing housing stock.
The rent problem the models didn't predict
The political argument for these changes is straightforward: if investors step back from established properties, more homes become available for first-home buyers. But new modelling challenges that logic — and raises a concern that deserves attention.
Research from MCG Quantity Surveyors and SuburbTrends, which analysed around 180,000 rental listings, found that Labor's negative gearing reforms will cost tenants considerably more, as rents will rise substantially. The modelling points to a significant reduction in cheaper rental options, with much of the new rental stock entering the market being brand new homes carrying a "new build premium."
Nationally, newly built homes already command an average rental premium of around $65 a week compared with established properties. In parts of Sydney, the difference is considerably greater — new properties in some eastern suburbs could cost around $24,700 more per year to rent than comparable established accommodation.
Property Update's Adam Hubbard contextualises the figure: "I wouldn't interpret that as meaning Sydney tenants are suddenly going to receive a $475 a week rent increase because of negative gearing changes — markets are much more complicated than that, and affordability ultimately limits what tenants can pay." But the structural issue stands: if investors are steered away from established dwellings and toward new construction, cheaper rental properties in middle-ring suburbs will become scarcer, while supply concentrates in outer-suburban precincts and new apartment developments that cost more to rent.
That matters in an environment where Australia already has very little spare rental capacity and population growth continues to add demand.
What this means for investors and buyers
For investors, the central message from analysts is that tax advantages should not be the primary reason to buy. Many new developments are located in areas with abundant future supply, relatively homogeneous properties, and limited owner-occupier appeal — all factors that can suppress long-term capital growth. Properties selected primarily for their tax treatment rather than their scarcity and location quality have always carried elevated risk; after 1 July 2027, they may face additional headwinds as investor demand for new stock competes on yield.
For buyers — particularly first home buyers — the calculus is more nuanced. Some investors will sell established properties rather than hold them under the new rules, and those sales can create genuine buying opportunities in suburbs previously dominated by investor-landlords. An investor exit doesn't create new housing stock, but it can make a particular property available to a buyer who otherwise couldn't compete.
The key caveat is borrowing capacity. With further rate rises expected before year-end, a buying opportunity in an established suburb is only useful if you can service the loan. Use our borrowing power calculator to understand what you can realistically borrow now, before any further RBA action tightens that ceiling.
For existing mortgage holders with investment properties, it's worth reviewing how the 2027 changes will interact with your current loan structure. Investor home loan options vary significantly in structure and pricing, and the relationship between rental income, deductibility, and loan type will matter more than it did before.
Housing supply remains the deeper issue. The reforms may redirect some investment toward new construction, but planning delays, high construction costs, labour shortages, and infrastructure gaps are the persistent obstacles to more housing. Policy changes alone won't resolve a structural undersupply — and that is the environment borrowers and investors will be navigating for the years ahead.