According to realestate.com.au, new modelling has found Labor's negative gearing reforms will cost some Sydney tenants up to $24,700 extra per year in rent — a figure that reframes the entire policy debate from a question of investor tax treatment to one of fundamental housing affordability. The impact is not uniform across the city, with some areas facing sharper rent increases than others depending on investor concentration, rental vacancy rates, and dwelling type. For a reform marketed as improving housing access, the modelled rent outcomes represent a significant policy tension that neither renters nor landlords can afford to ignore.
What the Modelling Shows — and Why $24,700 Matters
The $24,700 annual figure sits at the upper end of the modelled range, but it is not an outlier cherry-picked to alarm. It reflects the real exposure of tenants in Sydney areas where negatively geared investors are most concentrated and where the vacancy rate leaves renters with little capacity to push back. The modelling accounts for the direct mechanism: restricting negative gearing to new builds funnels investors into new properties, reducing established rental supply and forcing tenants into higher-cost new rental stock. In a city already running near-zero vacancy in many inner and middle-ring suburbs, that supply shock translates directly into price pressure on remaining stock.
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The mechanism is straightforward, if politically uncomfortable. Negative gearing currently allows property investors to deduct rental losses — where interest and expenses exceed rental income — against their full assessable income, including wages and business income. Labor's proposed reforms would quarantine those losses, meaning they could only be offset against future investment income rather than reducing a tax bill today. For investors carrying significant debt on Sydney properties — where yields are historically thin relative to purchase prices — this changes the after-tax return equation materially. Many will face a choice between selling, raising rents, or absorbing losses that are no longer tax-deductible in real time. Given these pressures, the rent-raising response is the most commercially rational one for investors who stay.
For tenants, the modelled upper range of $24,700 in additional annual rent represents a significant and potentially unmanageable cost increase. That places comfortable rental housing firmly out of reach for many middle-income earners, compounding the affordability pressures already facing Sydney renters. Those who hoped the reforms would improve their position may instead find themselves in a tighter, more expensive market.
Investor Behaviour: Who Sells, Who Stays, Who Raises Rents
Not all negatively geared investors will respond identically to the reform. The critical variable is marginal tax rate. A high-income investor in the top marginal bracket — 47 cents in the dollar including the Medicare levy — currently receives the most valuable tax shield from negative gearing. For that cohort, quarantining losses eliminates a benefit worth nearly half of every dollar of rental loss. Their calculus around holding versus selling shifts dramatically. Lower-income investors who entered the market on thinner margins face a different but equally decisive calculation: without the tax deduction, the property may be cash-flow negative in a way that simply cannot be sustained month to month.
For investors who do stay in the market, the rational response is rent recovery. This is not price gouging — it is arithmetic. If the annual tax benefit of negative gearing is removed, an investor must either accept a lower after-tax return or recover the equivalent amount through higher rent. In Sydney's supply-constrained rental market, the landlord holds significant pricing power. The modelled $24,700 annual increase represents the outer bound of that pricing power being exercised in full, and even a partial recovery of lost tax benefits represents a meaningful additional cost for tenants already stretched thin.
Background: Negative Gearing and Asset Class Competition
The policy debate around negative gearing cannot be separated from the broader question of where Australian investors allocate capital. Residential property has historically dominated Australian private wealth accumulation in a way that is unusual by global standards, driven in part by the interaction of negative gearing, the 50% CGT discount for assets held over 12 months, and leveraged ownership structures. For a detailed breakdown of how property stacks up against shares, bonds, and other wealth vehicles on a risk-adjusted, after-tax basis, the Australian Property vs Other Asset Classes guide provides essential context.
If negative gearing losses are quarantined, some investor capital will rotate toward asset classes where losses can be offset more efficiently — or where yields are sufficient to avoid losses altogether. Commercial property, shares, and managed funds all allow investors to carry forward losses in various structures. For investors considering their options, the Australian Property Tax Guide covers the full interaction of negative gearing, CGT, and depreciation schedules in one place — essential reading before making any portfolio decision in the current policy environment.
What Investors and Tenants Should Do Now
The reforms are not yet legislated, and the precise final form of any changes to negative gearing will determine actual market impact. But the modelling is a clear signal: investors and tenants alike should be preparing for a materially different rental market if the proposals proceed. For investors, the immediate priority is a cash-flow audit. Running the numbers on each property under a quarantined-losses scenario — using current interest rates, gross rental income, and operating expenses — will reveal which holdings remain viable and which do not. Properties where the numbers do not work should be assessed for potential sale before any reform-triggered supply wave affects prices.
For tenants, particularly those on fixed-term leases expiring in the next 12–18 months, the modelled rent increases are a reason to consider lease extension or lock-in options where available. A Sydney tenant who can secure a longer lease at current rates before the reform passes and investors begin repricing may be materially better off than one who rolls onto a month-to-month arrangement into a tightening market. The $24,700 figure is a modelled upper bound — but even a fraction of that outcome would represent a significant rent shock by any measure.
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This article was produced with AI assistance and reviewed for accuracy. Content is for informational purposes only and does not constitute financial or property investment advice.
