The recent federal budget reforms aimed at helping Aussies into homes may have unintended consequences, potentially pushing rents higher and delaying independent living for many. While the changes are set to benefit existing landlords and investors, the broader impact on renters and first-time buyers could be detrimental. The Aus Property Professionals Director, Lloyd Edge, highlights a critical aspect: the grandfathering of negative gearing means existing landlords will continue to benefit from it, but they'll also enjoy rental increases. This could lead to a significant rise in rents, similar to what occurred in 1985 when negative gearing was changed and then reintroduced a few years later. Edge predicts that with fewer investment properties being purchased, the rental market will become more competitive, resulting in higher prices for tenants. The situation is further exacerbated by higher immigration levels compared to new housing supply, putting additional pressure on the market. The impact is already being felt in Sydney, where tenants are bracing for another financial squeeze due to the government's decision to axe negative gearing. The chief economist at Ray White, Nerida Conisbee, notes that while fewer investors buying established homes might help some buyers, it doesn't benefit renters who can't afford to buy. The problem, she argues, is that the renter displaced from a home doesn't disappear; they still need somewhere to live, but there may be fewer rental properties available in the desired location. This shift in affordability pressures from buyers to renters is a concern for many experts. Conisbee suggests that the shrinking rental pool may lead to people staying with parents longer, moving into larger share houses, delaying moving out, or accepting longer commutes to find cheaper housing. The broader policy challenge, as Conisbee points out, is ensuring Australia has enough rental housing across different price points and locations. A well-functioning rental market is crucial not just for housing affordability but also for labor mobility, productivity, and household formation. The real risk, she warns, is that reducing the number of landlords could reduce rental choice, increase competition between tenants, and push more pressure onto rents. Economic modeling from the property analytics group FoundIt forecasts significant rental increases across some Sydney suburbs in the next three months alone. While the impact of these rent rises may not be as drastic as some predict, there is likely to be sharper increases in the near term. REA Senior Economist Angus Moore suggests that over the long run, rents will be a bit higher due to the tax changes, but the effects are typically not large, in the order of a few percent. However, in the near term, there are risks, particularly if more investors than expected sell, which could tighten rental markets and lead to more material increases in rents than expected. The budget reforms, while well-intentioned, may inadvertently create a situation where existing landlords and investors benefit, while renters and first-time buyers face higher rents and delayed independence. This raises a deeper question: how can policymakers ensure that housing reforms benefit all Australians, not just a select few?
