Where negative gearing bites — and where it barely registers
The tax office’s own data shows the same reform landing very differently across Sydney. In the growth corridors it threatens the whole investment case. In the Eastern Suburbs, most investors were never relying on it. Add three rate rises and record-low affordability, and the investor market of 2026 looks nothing like the one we’ve known.
Two Sydneys in one table
The latest suburb-by-suburb tax data covers 2023–24. It tells a story most commentary has missed.
In the outer west, landlords in The Ponds and Schofields had the city’s highest concentration of negative gearing. Typical annual losses ran at around $9,000 to $10,000 per investor. Most were ordinary households with a single property, borrowing heavily against thin yields and relying on the tax refund to close the gap.
Double Bay sits at the opposite end. It recorded some of the lowest negative gearing claims in Sydney. On the same ATO figures, compiled by Carlisle Homes, Double Bay landlords averaged a net rental profit of $9,693, and Rose Bay recorded $8,933. Both were among the five most profitable locations in the country.
Same city. Same tax law. Completely different exposure.
The national picture
The ATO’s tables show how quickly the ground shifted. In 2023–24, 1,266,454 individuals reported a net rental loss, out of 2,335,540 with rental property. That’s 54 per cent, up from 49 per cent the year before.
The typical loss-maker is not a property baron. Of those reporting a loss, 914,882 held a single property. Only 9,045 held six or more.
Rates did most of the damage. Carlisle Homes estimates collective net rental income reversed by $8.7 billion over two years, closely tracking the RBA’s rate cycle.
One caveat the headlines leave out. This data comes from a volume home builder, and new builds are the one category that keeps negative gearing. That doesn’t make the numbers wrong, but readers should know who is framing them.
Rates: the cycle isn’t finished
Since then, borrowing has become more expensive again. The RBA lifted the cash rate three times this year — in February, March and May — by 0.25 per cent each time, taking it back to 4.35 per cent.
The next decision is on 29 September. Economists broadly expect the Board to lift the cash rate to 4.60 per cent. On 18 September, Governor Bullock told a parliamentary committee she had retired her earlier thinking on rate cuts, and signalled a more hawkish approach.
For a leveraged investor, this is the whole story in one line. The rent doesn’t change, but a neutral property slides into loss.
What the reforms actually do
From 1 July 2027, negative gearing will be limited to new builds, and the 50 per cent CGT discount will be replaced with cost base indexation and a 30 per cent minimum tax rate on capital gains.
Existing owners are protected. Properties held before 7:30pm AEST on 12 May 2026 are exempt from the negative gearing changes, and the CGT reforms only apply to gains accruing after 1 July 2027.
For anyone buying an established property after budget night, the loss isn’t lost. It’s quarantined. It can only be deducted against residential property income, including capital gains, with any excess carried forward.
The transition date matters. The old 50 per cent discount will apply to gains up to the asset’s value at 1 July 2027. From that date, indexation and the minimum tax apply. Owners can either get a valuation as at 1 July 2027, or use an ATO apportionment formula.
The reform doesn’t touch the investor who already owns. It removes the next one — and that changes who turns up on auction day.
Investors have already stepped back
The lending data moved first. New investor loan commitments fell 8.6 per cent in the June quarter, and their value fell 10.2 per cent. It was the largest fall since September quarter 2022.
FoundIt, which tracks properties bought and then listed for rent, shows the same retreat on the ground. In May, 5,447 rental homes were sold nationally, while only 3,915 were bought to be rented out. FoundIt estimates Sydney lost 1,585 rental bedrooms that month alone.
Its most recent reading goes further. FoundIt says the bigger problem isn’t landlords rushing to sell. It’s that new investors aren’t replacing them, with just 61 homes coming in for every 100 that leave.
FoundIt’s head of research, Kent Lardner, makes a point policymakers have largely skipped. Negative gearing subsidised renters as much as landlords, because it let investors supply homes where yields didn’t stack up on their own. Remove it, and he expects those investors to stop buying and rents to rise.
Will rents really spike?
That’s the warning for Western Sydney tenants, and it deserves a fair hearing from both sides.
Treasury expects the effect to be small. Its modelling puts the rent increase at less than $2 a week for a household paying the median rent, and prices growing about 2 per cent less over a couple of years. Industry modelling is far gloomier. Qaive and Tulipwood Economics project much lower construction and rents 2.4 per cent higher by 2029–30.
The current data is more mixed than either side admits. Sydney’s vacancy rate rose to 1.7 per cent in July, up from 1.5 per cent a year earlier. That is easing, not tightening. And one analysis of the same FoundIt research found ex-rentals made up about 21 per cent of Sydney and Melbourne listings. Investors own roughly 27 per cent of occupied housing, so they’re actually under-represented among sellers.
Economists such as Saul Eslake make the other obvious point. A rental that’s sold doesn’t vanish. It’s usually bought by someone who was renting. My view is that the rental shock will be real in the outer corridors, where investment only worked with the tax refund. It will be far milder where it didn’t.
Affordability: the ceiling everyone is hitting
Every measure says the same thing. Cotality puts the national dwelling value-to-income ratio at 8.2, against a 20-year average of 6.8. Sydney sits well above that.
PropTrack’s latest report is starker. A median-income household earning about $125,000 could afford just 12 per cent of homes sold nationally last financial year. Repayments now take 35.5 per cent of average household income, above the GFC peak of 33.3 per cent.
I remember 1989 well. That year, repayments took 37.5 per cent of income with mortgage rates around 15.5 per cent. Today the rate is about 6.3 per cent. The difference is the size of the debt. At 1989 rates, today’s average mortgage would take three quarters of an average household’s income. I wrote about this in The Million Dollar Mortgage.
In 1989 the rate was the problem. In 2026 the debt is the problem — and debt doesn’t shrink when the RBA cuts.
Where Sydney values sit now
Prices are adjusting. Sydney values fell 1.4 per cent in August, 4.7 per cent over the quarter and 4.6 per cent over the year. They’re now 7.1 per cent below February’s peak, a sharper fall than at the same point of the 2022–23 correction.
Premium markets are still weaker than lower-priced housing, but the gap is narrowing. Through winter, 93 per cent of capital city suburbs recorded a decline.
What it means for Eastern Suburbs owners
This is my professional assessment, not tax advice. Every owner’s position is different.
If you own an investment property here
You are probably less exposed than the headlines suggest. The ATO data says it plainly: Eastern Suburbs investors tend to hold with lower debt and stronger returns. Your existing negative gearing is protected until you sell anyway. That makes selling a bigger decision than before, and some owners will hold for that reason alone. Fewer listings tend to support quality stock.
If you’re selling an established apartment
This is the change to watch. Part of your future buyer pool — the investor buying an established unit — has less reason to bid from next July. Owner-occupiers and downsizers matter more than ever. The campaign should be built around them.
If you plan to sell after 1 July 2027
Your property’s value on that date sets the split between the old and new CGT rules. A documented valuation close to that date may save far more than it costs. Speak to your accountant now, not in 2028.
If you’re buying
Competition from investors for established homes has thinned. While rates are rising, owner-occupiers hold a stronger hand than they have in years.
If off-the-plan now looks tempting
New builds keep the concession, but a tax benefit doesn’t cover a valuation shortfall at settlement. Nothing in this Budget changes that risk.
The quiet conclusion
The same reform that could make investment untenable in The Ponds barely registers in Double Bay. That’s not a political observation. It’s arithmetic. The owners who do well over the next two years will be the ones who know their own numbers: their gearing, their holding period, and where they’ll stand on 1 July 2027.
Know where your property stands before the rules change
If you’d like to talk through what this means for your property — its value today, and how it’s likely to be viewed by buyers after July 2027 — I’m happy to meet at your home or a local café.
