Why Australia Still Rewards Landlords Over Renters

Description

Australia still rewards landlords. It is reforming landlord tax concessions, but renters and public housing remain disadvantaged by decades of unequal policy.

For decades, Australian governments have treated housing in two very different ways.

For property investors, housing has been supported as a private wealth-building asset. Investors could deduct rental losses from wages and other income, then receive a 50 per cent discount on capital gains when an asset was sold after more than 12 months.

For renters—especially people unable to afford market rents—housing assistance has been far less generous. Public housing has declined as a share of the nation’s homes, waiting lists have grown, and many tenants face insecurity, repeated rent increases and little chance of buying a home.

Parliament passed significant reforms in June 2026. From 1 July 2027, negative gearing on residential property will generally be restricted to new builds, while the 50 per cent capital gains tax discount will be replaced by inflation indexation and a minimum tax on real capital gains. These are important changes, but extensive grandfathering means the old system will continue benefiting many existing investors for years.

The result is that Australia still rewards property ownership more reliably than it protects the right to a secure home.

Housing Policy is Never Neutral

The housing crisis is often described as if it were an unavoidable accident caused entirely by population growth, high interest rates, planning delays or shortages of land and building materials.

Those pressures are real, but governments also shape the housing market through deliberate choices. Tax laws influence what people invest in. Public spending determines how much social housing is built and maintained. Tenancy laws decide how secure renters are. Banking and credit rules affect who can borrow and how much they can bid.

For many years, these policies encouraged investors to purchase property—usually existing homes—while governments allowed public housing to fall behind population and household growth.

This did not create Australia’s housing crisis by itself. However, it helped turn homes into speculative assets and placed investors with tax advantages in competition with people trying to buy somewhere to live.

How the Tax System Supported Landlords

Property investors have been able to claim legitimate expenses incurred in earning rental income. These can include interest on investment loans, council rates, insurance, repairs, property management expenses and capital works deductions.

Claiming the ordinary cost of earning taxable income is not unique to landlords. Businesses and workers can also claim eligible expenses. It would therefore be misleading to describe every landlord deduction as a government handout.

The greater advantage arose from the interaction between negative gearing and the capital gains tax discount.

Negative Gearing

A property is negatively geared when its deductible expenses exceed its rental income. Under the longstanding rules, an investor could deduct that loss from unrelated taxable income, including wages.

Suppose an investor received $25,000 in rent but had $35,000 in eligible expenses. The resulting $10,000 loss could reduce the investor’s taxable salary. The value of that deduction was generally greater for someone paying a higher marginal tax rate.

Treasury reported that in 2022–23:

about 2.4 million people claimed rental deductions;
1.2 million of them reported a rental loss;
those rental losses totalled $11 billion; and
the losses reduced tax by approximately $3.9 billion.

Treasury also found that people in the top 30 per cent of taxable incomes received 71 per cent of the benefit from rental losses. This does not mean every negatively geared investor is wealthy. It does show that the largest aggregate benefits were concentrated among people with higher incomes.

The Capital Gains Tax Discount

Until the reforms begin, individuals and trusts generally receive a 50 per cent discount on capital gains from assets held for more than one year. Only half of the nominal gain is included in taxable income.

The discount applies to assets including shares and businesses, not only investment housing. Consequently, the total cost cannot honestly be presented as a landlord-only concession.

Even so, its interaction with negative gearing made property especially attractive. Rental losses could be deducted in full—often while an investor was earning a high salary—whereas only half the eventual nominal capital gain was taxed.

Treasury estimated that the CGT discount for individuals and trusts would forgo $21.79 billion in revenue in 2025–26 across all eligible assets. In 2022–23, approximately 83 per cent of the benefit went to the highest taxable-income decile.

The 2026 Budget papers went further. Treasury found that almost one in three investment properties sold in 2022–23, after being negatively geared on average, had generated a nominal profit while leaving the investor paying less income tax over the investment’s life than if the property had never been purchased. In these cases, Treasury described the outcome as an effective subsidy.

Most Investor Finance Did Not Build Another Home

Supporters of investor concessions argue that landlords supply rental accommodation. That is true: private investors provide most of Australia’s rental homes, and abruptly removing investors without adding alternative supply could cause disruption.

But buying an existing dwelling does not increase the total number of homes. It changes who owns the property.

According to the 2026–27 Budget, 83 per cent of new investor housing loans in 2025 financed existing properties rather than new ones. Treasury reported that the proportion had remained between roughly 80 and 90 per cent since 2019.

This distinction matters. When an investor and a prospective owner-occupier bid for the same established home, tax concessions can increase the investor’s purchasing capacity without adding a dwelling. The successful investor may return the property to the rental market, but the unsuccessful buyer may remain a renter.

Tax concessions can therefore rearrange tenure—turning a potential owner-occupied home into an investment property—without solving the underlying shortage.

What Governments Spend on Public Housing

Comparisons between tax concessions and public housing are often made too casually. Tax reductions, revenue forgone, recurrent expenditure and capital investment are different measures. They may cover different governments, programs and financial years.

The fairest conclusion is not that every dollar deducted by a landlord could automatically become a dollar of public housing. It is that governments devoted substantial support to private investment while allowing the public alternative to become too small.

The Productivity Commission reported that in 2024–25:

state and territory governments spent a net $5.9 billion recurrently on social housing;
$4.4 billion of that amount related to public housing;
the Australian Government provided $1.9 billion to the states and territories through the National Agreement on Social Housing and Homelessness and related agreements; and
total government funding for social housing and specialist homelessness services was approximately $7.7 billion.

Some federal funding is included within state and territory expenditure, so these figures must not simply be added together. They also do not capture every capital program or the full value of land and existing housing assets.

Nevertheless, the contrast is striking. Treasury estimated the tax reduction from all rental deductions—not just negative gearing—at $27.9 billion in 2024–25 and $29.2 billion in 2025–26. Those figures should not be called the “cost of negative gearing,” because they include ordinary expenses incurred in earning rent. But they reveal the vast scale of tax support embedded in the private rental system.

By comparison, recurrent public-housing expenditure remains modest, and the public stock has not kept up with need.

Public Housing Has Gone Backwards

Australia once treated public housing as essential national infrastructure. Governments built homes at scale for working families as well as people experiencing serious disadvantage.

Over time, public housing became increasingly residualised: smaller, more tightly targeted and often available only to people with the most urgent needs. This helped create the false impression that public housing was merely emergency welfare rather than a legitimate and permanent part of the housing system.

The Australian Institute of Health and Welfare reported that:

public housing declined from about 341,000 dwellings in 2006 to 297,000 in 2025;
community housing increased from approximately 30,100 to 118,000 dwellings over the same period, partly reflecting transfers from public management;
social housing fell from 4.7 per cent of all Australian households in 2013 to 4.0 per cent in 2025; and
206,000 households were on consolidated social-housing waiting lists in June 2025.

The public-housing waiting list alone contained about 190,000 households, up from 155,000 in 2014. Of these, 77,400 were classified as being in greatest need.

Waiting-list figures do not measure the full shortage. Eligibility rules differ between jurisdictions, some people do not apply because they expect an extremely long wait, and the data count households rather than every person affected.

As of June 2025, around 799,000 Australians lived in social housing. Yet only 32,400 households received a new social-housing allocation during 2024–25. Eighty-two per cent of those allocations went to households in greatest need, including people who were homeless or at risk of homelessness.

Public housing has become a scarce last resort rather than a broad public service.

The System Rewards Wealth More Than Work

An employee earns income by working and pays tax on those earnings. A property investor may receive rent, deduct financing and other costs, benefit from rising land values and—under the pre-reform rules—receive a large discount when the gain is realised.

The wealth created by rising property prices can then become the deposit for another investment. Equity in one property helps secure finance for the next. Renters, meanwhile, may pay a substantial share of their income to support an asset owned by somebody else while trying to save a deposit in the same rising market.

This produces a compounding divide:

Existing owners gain equity as prices rise.
That equity increases their borrowing power.
Tax deductions reduce the cost and risk of investment.
Investors can outbid households without existing property wealth.
More renters are locked out of ownership and remain dependent on private landlords.

This is not a criticism of every landlord. Many own only one investment property, meet genuine costs and provide decent, stable accommodation. The problem is the policy structure, not the personal character of individuals who operate within it.

The structure has favoured those who already possess income, equity and borrowing capacity. Treasury’s 2026 analysis found that about half of the lifetime tax benefits from negative gearing accrued to the highest-earning 10 per cent of Australians, while 12 per cent went to the top 1 per cent.

Renters Receive Assistance—But Often Through Landlords

Renters are not entirely unsupported. Commonwealth Rent Assistance helps eligible income-support recipients and family-payment recipients meet private or community housing costs. Almost 1.4 million income units received it in June 2025.

This assistance is important, but it does not create a public asset. In a severely under-supplied market, higher rent assistance can also be partly absorbed through higher rents over time. Its effectiveness therefore depends on increasing supply and strengthening tenants’ rights.

Public housing expenditure produces something different: a durable community asset that can provide secure, below-market housing for successive generations. Properly designed public construction can also expand total supply, train workers, support regional development and establish a competitive benchmark for private rents.

The contrast is fundamental. One approach helps households compete in an expensive market. The other changes the market by adding permanently affordable homes.

What Changes Under The 2026 Reforms?

The tax reforms passed by Parliament in June 2026 are substantial, but they do not abolish investor support.

From 1 July 2027:

rental losses from newly acquired established residential properties will generally be quarantined and carried forward rather than deducted from wages;
residential property that genuinely adds to supply will retain access to negative gearing;
the fixed 50 per cent CGT discount will generally be replaced by indexation of the asset’s cost base, so inflationary gains are excluded; and
a minimum tax rate of 30 per cent will apply to real capital gains, with stated exemptions including income-support recipients.

Important protections remain for existing investors. Properties owned before the Budget announcement at 7.30 pm AEST on 12 May 2026 are grandfathered for negative gearing until sold. Capital gains accrued before 1 July 2027 retain the old treatment. Investors purchasing qualifying new builds will also continue to receive special treatment.

The reforms are expected to raise $3.6 billion over the forward estimates and, according to the government’s modelling, support an additional 75,000 homeowners over a decade.

These estimates should be monitored rather than treated as guarantees. Housing outcomes will also depend on construction capacity, land release, infrastructure, credit conditions, migration, interest rates and the speed at which governments build social housing.

The reforms correct part of the imbalance by directing future negative-gearing support towards additional supply. Grandfathering reduces disruption, but it also means the existing divide will unwind slowly.

Will Reform Drive Up Rents?

The strongest argument against restricting investor concessions is that landlords may leave the market, reducing rental supply and increasing rents.

This concern deserves a serious answer.

If an investor sells an established home, the dwelling does not normally disappear. It may be bought by another investor or by an owner-occupier. If a renter buys it, both one rental property and one renter leave the private rental market. The immediate effect on rental availability therefore depends on who buys, who moves and whether household formation changes.

Rents are influenced mainly by the balance between the number of households seeking homes and the number of suitable dwellings available. Tax policy can affect that balance, but restricting concessions on existing property while retaining incentives for genuinely new housing is more defensible than subsidising investors to trade homes already built.

There can still be transitional pressures, particularly in areas with extremely low vacancy rates. That is why tax reform must be accompanied by rapid public, community and private construction—not used as a substitute for it.

Australia Can Build Public Housing at Scale

The Australian Government is the issuer of the Australian dollar. Unlike a household, state government or local council, it cannot involuntarily run out of its own currency.

That does not mean it can spend without limits. The real limits are the availability of suitable land, construction workers, building materials, equipment, energy and administrative capacity. If governments try to purchase more than the economy can produce, they can add to inflation.

Taxation remains important, but federal taxes do not operate like money collected in a household jar before spending can occur. Taxes help manage inflation, influence behaviour, reduce inequality and free real resources for public purposes.

Australia’s monetary sovereignty therefore changes the question. Instead of asking, “Where will the government find the dollars?”, we should ask:

Are enough builders, planners, engineers and tradespeople available?
Can training and apprenticeships expand capacity?
Is public land available in well-serviced locations?
Can governments coordinate construction without bidding recklessly against existing projects?
Which tax and credit settings would reduce speculative demand and release resources for new homes?

A long-term national building program could be expanded when private construction weakens and moderated when the sector reaches capacity. This would provide stable employment and apprenticeships while reducing the stop-start cycle that damages construction capability.

A Fairer Housing Settlement

Australia needs more than one policy change. A credible housing settlement should include:

A permanent public-housing construction program

The Commonwealth should lead a coordinated national program with clear annual targets, reliable funding and transparent reporting. New homes should remain publicly owned and permanently affordable rather than being sold off after a short period.

Public housing for a broader range of people

Public housing should not be restricted to people in crisis. A mixed-income model would reduce stigma, strengthen communities and create a larger, more politically durable system.

Investment incentives tied to additional supply

Tax concessions should reward construction that genuinely increases the number of homes, not simply help investors bid up existing dwellings. The 2026 negative-gearing reform is a move in this direction and should be independently evaluated.

Strong national minimum standards for renters

Tenants need reasonable limits on rent increases, enforceable property standards, protection against retaliatory eviction, longer and more secure leases, and effective enforcement. A home should not become insecure merely because its occupant does not own it.

Better use of public land and infrastructure

Governments should identify suitable public sites near transport, health services, schools and employment. Housing policy must include the infrastructure that makes a community liveable.

Rebuilding public construction capacity

Governments need in-house planners, project managers, architects and other expertise. Expanded TAFE, properly paid apprenticeships and direct public employment can increase the real capacity needed to build without fuelling excessive price pressures.

Transparent housing accounts

Each federal budget should publish a clear housing statement comparing tax expenditures, rent assistance, recurrent housing expenditure, capital investment, dwelling completions and changes in public and social housing stock. Australians should be able to see who benefits from housing policy and what is delivered in return.

Housing Should Be a Home Before It Is an Investment

Australia did not arrive at its housing crisis through a shortage of money alone. It arrived here after decades of policy choices that gave stronger support to property accumulation than to universal housing security.

The 2026 reforms acknowledge an important truth: tax concessions that mainly help investors buy existing dwellings can worsen the contest between accumulated wealth and people seeking their first home. Redirecting support towards new construction is a worthwhile correction.

But tax reform alone will not provide a secure home to the 206,000 households on social-housing waiting lists. It will not restore the public homes lost as a share of the population, and it will not automatically give private renters security.

Australia needs to rebuild public housing as essential infrastructure—just like hospitals, schools and transport. The federal government has the monetary capacity to lead. Its task is to mobilise the real resources responsibly, expand construction capacity and ensure that public investment adds supply without driving inflation.

The decisive question is not whether Australia can afford secure housing. It is why a wealthy, dollar-sovereign nation has tolerated a system in which owning multiple properties receives more reliable policy support than needing one safe place to live.

What should come first: protecting the investment returns of existing property owners, or guaranteeing every Australian access to a secure and affordable home?

Frequently Asked Questions

Does every rental deduction amount to a subsidy?
No. Many deductions represent legitimate expenses incurred in earning rental income. The controversial advantage arises particularly when rental losses reduce tax on unrelated income and are combined with concessional taxation of later capital gains.

Does negative gearing create rental housing?
It can support new construction, but most investor lending has financed existing homes. Buying an existing property changes its ownership without increasing the total housing stock.

Is public housing the same as social housing?
Public housing is owned and generally managed by state or territory governments. Social housing is the broader category, including public housing, community housing and several Indigenous housing programs.

Have negative gearing and the CGT discount been abolished?
No. From July 2027, negative gearing will generally be restricted to new residential builds, with existing properties grandfathered. The fixed CGT discount will generally be replaced with inflation indexation and a minimum tax, while transitional rules and special treatment for new builds apply.

Can Australia fund a major public-housing program?
Yes. As the issuer of the Australian dollar, the federal government has the financial capacity. The practical limits are available workers, skills, materials, land, infrastructure and inflation, all of which require careful planning.

Sources

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