Under the tax changes announced in the federal budget, Australians buying investment properties will lose access to negative gearing from July 2027, making ‘rent-vesting’ less attractive, experts say. Photograph: georgeclerk/Getty ImagesView image in fullscreenUnder the tax changes announced in the federal budget, Australians buying investment properties will lose access to negative gearing from July 2027, making ‘rent-vesting’ less attractive, experts say. Photograph: georgeclerk/Getty ImagesHas Labor’s tax reform killed ‘rent-vesting’ for young Australians seeking a foothold in the housing market?Changes to capital gains tax and negative gearing will make the strategy of renting in a preferred area while buying a cheaper property elsewhere less attractive, experts say
Explore all of our 2026 Australia federal budget coverage
Follow our Australia news live blog for latest updates
Get our breaking news email, free app or daily news podcast
Rent-vesting – a popular strategy used by young Australians to save for their first home – could be killed off by Labor’s tax changes on investment properties, experts warn.
Renters have used the strategy to keep living in their preferred area while buying a cheaper property elsewhere, hoping it will rise in price so they can sell and put the profits towards their first home.
It has boomed in popularity as young Australians struggle to break into an unaffordable housing market.
Read moreBut higher capital gains tax and the tight restrictions on negative gearing announced in Tuesday’s budget will make the method less attractive, according to Domain’s chief economist, Dr Nicola Powell.
“It’s going to hurt … [and] their journey to actually buying a home and having it as a roof over their head might be delayed,” Powell said.
“Rent-vesting is all about building up equity and releasing that gain to then eventually put into a home that you want to live in yourself.”
The typical Australian home now costs eight times more than the typical income after years of soaring prices, according to property data firm Cotality. It would take 11 years to save a 20% deposit.
Tuesday’s tax reforms, aimed at cutting investors’ competition for housing, are expected to help an extra 75,000 renters buy their first home in the coming decade and leave house prices 2% lower than they otherwise would have been.
Rent-vestors had sought to use spiralling house prices and the now-scrapped tax breaks as a means to bridge the affordability gap.
Since July 2019, nearly 53,000 Australians have entered the housing market by buying an investment property, according to the Australian Bureau of Statistics.
A third of them have been in New South Wales, Australia’s least affordable housing market.
Ry Atkinson, a Sydney renter, has been among those investing their home deposit savings in a cheaper property further away.
The 31-year-old’s parents bought their home in Sydney’s northern beaches while working in disability care. The only way Atkinson could afford a decent place nearby was to become a rent-vestor, he said.
View image in fullscreenRy Atkinson and his wife, Sophie, became ‘rent-vestors’ after struggling to get into Sydney’s housing market“It’s all luxury apartments now that no one can afford,” Atkinson said. “We’re priced out of the market here, so we had to look to some other options.”
Atkinson and his wife, Sophie, bought a house 1,200km away, in Queensland’s Hervey Bay, in January, hoping it would rise in price in the coming years so they could sell it and buy in Sydney.
Those capital profits will be more tightly taxed after Tuesday’s budget but Atkinson still supports the reform.
“We know how difficult it is and something does need to change,” he said.
Like most young investors, the couple spends more money repaying the loan than they earn in rent. Negative gearing allows landlords to deduct losses on tax, propping up investments with low yield.
The couple will retain their access to negative gearing but people buying investment properties after Tuesday’s budget will lose access to negative gearing from July 2027 onwards.
Brendan Dixon, the managing director of Pure Finance, said that meant banks would cut the amount they would lend to new buyers, making rent-vesting more difficult.
“Investors won’t be able to borrow as much money, which will reduce their rent-vesting budget,” Dixon said.
Read moreThe shadow treasurer, Tim Wilson, has argued the reforms harm young Australians by making the strategy more costly.
“If you seek to invest your home deposit to buy your first home, the government is going to increase the taxes on that, so they’re actually hamstringing young Australians who want to get ahead,” Wilson told the ABC on Tuesday.
The strategy is used by a small share of housing market entrants, with 7,000 new rent-vestors in the year to March, compared with 120,000 new first home buyers in the year.
Samuel Power, a finance broker with Loan Market, said Australia’s persistent lack of housing supply and high prices meant young people would still be left looking for opportunities to rent-vest.
“Older Australians have built wealth through established property over decades, supported by the existing tax system,” Power said.
“Restricting negative gearing to new builds increasingly locks, or at least limits, younger buyers out of the same pathway.”
