Negative Gearing Reforms: What Borrowers Must Understand
From 1 July 2027, negative gearing will be restricted to new builds. Here is what the change means for buyers, investors, and renters.
Australia's negative gearing laws are changing. From 1 July 2027, investors who acquire established residential property will no longer be able to offset rental losses against their wages and salaries in the year they occur. Property Update reports that under the new rules those losses will be quarantined and carried forward, available to apply against future residential rental income or capital gains from residential property.
New builds are exempt. Investors who buy qualifying newly constructed homes that genuinely add to housing supply will retain full negative gearing benefits and receive more favourable capital gains tax treatment. Properties already held before the Budget announcement are grandfathered, meaning no existing landlord is forced to sell.
This is a significant structural shift for Australia's property market. Its effects will ripple differently across buyers, investors, and the millions of Australians who rent.
What the Change Means for Investors and Buyers
The cash-flow impact is real. Commonwealth Bank estimates that losing the immediate annual negative gearing deduction is the equivalent of an investor's mortgage rate rising by roughly 90 to 155 basis points from a cash-flow perspective. That is a substantial increase in the cost of holding an established investment property, particularly for highly geared investors on higher marginal tax rates.
Investors may eventually recover some of the lost benefit through those carried-forward deductions — but future relief does not help meet today's mortgage repayments, maintenance, insurance, or land tax obligations. An established property that was marginal under the old rules could become unattractive, particularly when rental yields are low and borrowing costs remain elevated. Some investors will reduce what they are prepared to pay for established property, buy new property instead, or invest elsewhere.
The grandfathering rules also create a lock-in effect. Anyone who sells a grandfathered established property cannot transfer its favourable tax treatment to a different established investment. Many current landlords will therefore have a strong financial incentive to hold rather than sell — which may actually reduce the volume of established homes coming to market.
Commonwealth Bank expects the reforms to leave dwelling prices just under 3% lower than they would otherwise have been. For first home buyers competing for established properties, particularly apartments and more affordable housing, that easing in competition may create genuine opportunities. Use our LMI calculator to model your upfront costs if you are approaching the market with a deposit below 20%. Investors exploring product structures that still make sense under the new rules should review our investor home loan hub.
The Rental Market Is the Bigger Risk
The government's stated goal is to give first home buyers a better chance at established properties. There is some merit to the argument: when investors step back from a segment, fewer bidders compete for the same homes, and prices can ease. But the transition is not clean, and the risk for renters is significant.
Australia's rental market was already seriously undersupplied before this reform was announced. SQM Research data cited by Property Update shows the national vacancy rate sat at just 1.3% in July 2026. Brisbane recorded 0.9%, while Perth and Adelaide each posted 0.6%, and Darwin just 0.3%. Sydney and Melbourne had slightly more availability at 1.7%, though competition remains intense across many suburbs. National advertised rents were 7.2% higher than a year earlier, with the average advertised rent sitting at approximately $698 per week.
The concern is not that every landlord will immediately pass on their higher costs dollar for dollar — rents are set by supply and demand, not an individual investor's tax bill. The deeper issue is what happens to rental supply over time. When fewer investors buy established properties, fewer properties remain available for rent. Research from MCG Quantity Surveyors and SuburbTrends, which examined approximately 180,000 rental listings, found that newly built homes attract a national average rental premium of around $65 per week over established properties. In Sydney's northern eastern suburbs, the estimated annual new-build rental premium reached $24,700.
That figure is widely misread. It does not mean existing tenants will see their rent increase by that amount. It means the composition of available rental housing is gradually shifting toward properties that cost more to rent. Affordable established rentals may move into owner-occupation while new supply skews toward higher price brackets.
Treasury estimates the reforms will add less than $2 per week to median rents. Commonwealth Bank reaches a broadly similar conclusion, partly because additional new construction could offset weaker investment in established properties. That construction response depends on an industry already stretched by elevated building costs, labour shortages, and planning delays — with no certainty that new homes will be built in the locations or price brackets where affordable rentals are most needed.
For first home buyers ready to explore the market, our first home buyer hub covers the loan structures and government incentives worth considering. For renters weighing whether ownership is within reach, our repayment calculator gives you an honest look at what monthly commitments would look like before making a move.
With vacancy rates at historic lows and rents already rising significantly, there is very little room for this reform to fall short on the construction side. Whether you are an aspiring buyer, a current investor, or a renter trying to plan ahead, understanding the mechanics matters more now than it did a year ago.