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Agent Tina O’Connor said the uncertainty of recent government reforms had reduced investor demand. Picture: Jeremy Piper
Western Sydney tenants have been warned to brace for one of the largest rental price shocks in the country when planned negative gearing changes take effect next year.
Analysis of tax office data has revealed the landmark reforms in this year’s May federal budget could make property investment in outer Sydney untenable, with a crippling impact for tenants.
The negative gearing claims data from the ATO for the 2023/24 financial year, the latest with suburb-by-suburb data, showed investors in outer areas were the heaviest users of the tax benefit.
Investors in these areas reported the greatest volume of losses on their properties, with the average landlord who made a claim owning just a single property.
Areas like The Ponds and Schofields in Western Sydney had the highest concentration of negatively geared landlords in the city, claiming typical annual losses on their investments of about $9000-$10,000.
More than half of the investors across the entire country (54 per cent) were negatively geared that financial year, a rise from about 40 per cent during the Covid years, when interest rates were at record lows.
A total of 1.27 million landlords made a claim, with less than 1 per cent owning more than 10 properties.
Negative gearing claims were the lowest in some of Sydney’s eastern suburbs like Double Bay, according to the analysis of ATO figures by development group Carlisle Homes.
This four-bedroom house in The Ponds recently sold but the rental yield would only be 3 per cent, unaffordable for most landlords.
Carlisle Homes manager Janine Armstrong said sustained pressure on investor returns threatened to paralyse housing supply.
Negative gearing reforms in a climate of already elevated interest rates would make the costs of supplying new rental homes prohibitive for most investors, she noted.
“These figures show how sharply the economics of property investment changed,” Ms Armstrong said.
“Sustained pressure on investor returns can influence investment decisions and rental-market participation, at a time when Australia is already facing significant housing-supply pressures.”
Research from property data group FoundIt showed new investment activity across Sydney has plummeted this year, with sales of rental homes eclipsing the rate of new rental purchases.
This Jordan Springs home, recently sold, would attract a rental yield of 3 per cent, again too low for many new investors without negative gearing.
FoundIt head of research Kent Lardner said property investment had simply become too expensive for most mum and dad investors and they were refraining from buying.
“Many people may welcome that, but it’s actually renters who will pay the price because there will be fewer properties available,” Mr Lardner said.
He explained that a key element in the debate over tax policy had largely been overlooked by policymakers: negative gearing was a subsidy for renters as much as it was for landlords.
“The benefit made it possible for investors to supply rental stock in areas where the rental yields were not as strong. Strip that away and investors stop buying … eventually rents go up,” Mr Lardner said.
ATO data showed the value of claims for tax-deductible mortgage interest costs totalled $32.2 billion the 2023/24 financial year, more than double the $15.9 billion reported the year before.
Cate Bakos said investors were exiting the market in a trend that could impact tenants.
A 2026 Annual Investor Sentiment Survey by the Property Investment Professionals of Australia confirmed homes were vanishing from the rental pool.
Surveyed investors revealed 12.4 per cent of the homes they sold went to first-home buyers.
PIPA Chair Cate Bakos said budget shock had fuelled the exodus.
“Last year, investors told us they would walk away if these reforms became law,” Ms Bakos said. “(This) shows a lot of them are doing exactly that.”
Ray White Annandale agent Tina O’Connor said reforms on negative gearing and capital gains tax, coupled with higher interest, made the climate too uncertain for most buyers.
“There’s just a real reluctance for people to invest at the moment,” she said. “When you don’t know what to do a lot of people just don’t do anything.”
Ms O’Connor at a Stanmore home that had been for sale with a different agent for over $2m, but buyer feedback has since fallen markedly. Picture: Jeremy Piper
Ms O’Connor said a perfect example of the budget’s impact was a house on 62 Albany Rd, Stanmore that was up for auction earlier this year with a different agent. It had been expected to sell for well over $2m, but buyer interest disappeared the day after budget night. Feedback ahead of the new auction is now in the high $1m-mark.
– With additional reporting by Unity Jackson-Muir
