Tenants are staring down the barrel of brutal rent hikes as the government’s decision to axe negative gearing incentives for existing properties threatens to deepen rental shortages.
New economic modelling from property analytics group FoundIt has forecast rents are likely to soar in the coming months due to the announcement of the tax policy changes in the federal budget.
The reforms, which will restrict negative gearing to purchases of new builds by mid-2027, are currently under review by parliament.
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Rent hikes of over $50 a week were expected in some areas this year largely due to the coming changes discouraging new investment activity. This would reduce the supply of new rentals at a time of rising tenant demand due to migration.
A weekly increase of $50 would require tenants to pay $2600 more in rent over a year.
Vacancy rates are already near record lows in many areas and competition for rentals remains high.
The report added that Treasury estimates in the Budget that showed the negative gearing reforms would add “$2” to the average weekly home rent were a “pipe dream” and increases over the next three months alone would be “well clear” of the forecast rise.
Rents in Sydney’s Manly were forecast to soar by $34 a week over the next quarter, while the city’s Eastern Suburbs-North would see a $32 average hike. Rents in parts of Brisbane were set to jump by an average of $18, the FoundIt modelling showed.
According to FoundIt, the gap between tenant demand and available rental supply is widening at an alarming rate.
With rising interest rates ramping up holding costs for investors, FoundIt revealed some landlords were already exiting the market ahead of the expected tax reforms.
And with little immediate replacement of that rental stock occurring, rents would continue to go up, FoundIt claimed.
FoundIt head of research Kent Lardner said the $2 Treasury estimates didn’t stand up.
FoundIt head of research Kent Lardner warned the changes could squeeze the exact people they were supposed to help.
“Most of the markets where rents are going up the fastest are affordable markets. There is a huge concentration of people competing for cheaper units,” Mr Lardner said.
He noted that the tax benefit previously acted as a “subsidy of sorts” that flowed back to renters, allowing landlords to hold properties during tough times without immediately increasing the rent.
Rent rises over the next 12 months could now eclipse $50 a week in many areas, Mr Lardner said.
Prabhat Kumar, who owns four regional properties with his wife, said they have been “backed into a corner” by exploding holding costs and the government shifting the tax goalposts.
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Rents could rise by more than $50 this year in some areas, Mr Lardner said.
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Because their properties are grandfathered under the new rules, Mr Kumar said selling now would trigger higher capital gains taxes and permanently cost them their negative gearing buffer.
“The only option is to hold that property, and to make it sustainable, the only other option is to raise that rent,” Mr Kumar said.
Mr Lardner noted a “herd mentality” where property owners were realising that others were increasing rents and jumping on the bandwagon.
There had been a lot of recent “chest beating” about rent hikes online, he observed.
Rental advocate and S — t Rentals Australia founder Jordan van den Lamb said he had also seen this.
“As soon as the Treasury modelling came out, I tweeted that it hadn’t modelled for landlord derangement,” Mr van den Lamb said.
Landlords on social media were openly planning to raise rents as a deliberate protest against the tax changes, the rental advocate said.
— With additional reporting by Nathan Mawby and Viva Hyde
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