Issue 20 | The Growing Pressure on Rental Supply

Andrew Bell Market Update 2026 | Issue 20

Hi, Andrew Bell with you for this fortnight’s market update.

As I mentioned in the last market report, this week I wanted to give you some insights into what has happened since the Federal Budget was announced on the 12th of May this year. We’re now past the four month mark, close to five, since that date, and whilst a lot of statistics take some time to be fully digested, what is becoming clear is that the rental market has moved in the opposite direction to what the government modeling might have suggested.

First up, investors have substantially reduced their activity. Now, the Australian Bureau of Statistics lending data cited by Realestate.com, shows investor lending fell by 8.6% in the June quarter. Now remember, the June quarter encompasses April, May and June. So the changes to taxation only came into effect halfway through the quarter. The percentage drop would have otherwise been much higher if those changes applied for the entire quarter.

Second, the rental pool is shrinking. An analysis of more than 760,000 listings found that during the first seven weeks after the budget night, 10,100 rental properties across Australia were actually sold. That’s a huge number. During the same period, only 6,140 new rental properties were purchased and listed for rent. That equates to a net loss of around 570 rental properties per week nationally. Or put another way, only 61 new rental properties were being added to the rental pool for every 100 rental properties being sold.

Now, you may have seen that there was an increase in rental vacancies during July, but this appears to be largely a timing issue. There was a significant increase in investor activity before the budget, and that stock of rental properties purchased subsequently hit the market in July. But we’re now starting to see the effects of the drop of purchases of new investment properties since May, and that will ultimately be reflected in vacancy rates moving forward. We’re certainly feeling it right across our very large rent roll now.

Now, you might also recall, Treasury projected that the changes to negative gearing would only result in rent increases of about $2 per week. Did you see that on budget night? Have you ever heard of someone increasing rent by only $2 per week? Particularly when we look at how interest rates have risen. Council and water rates have increased, insurance premiums have increased, and our body corporate levies have increased. Well, all of that, of course, means that rents were always going to increase more than $2 per week.

SQM Research figures to September 20th just past showed that the national combined asking rents are up approximately 7.4% over the previous 12 months. Houses in Brisbane, for example, averaged $838 per week, up about 8.6% over the year, whilst units are averaging $647 per week, and which is an increase of 5.5%.

Now, moving on to a much broader market perspective, SMSF advisor estimates that 10,000 new dwellings will not be started as a result of the changes to negative gearing, capital gains tax and the ban on self-managed super funds using limited recourse borrowing arrangements. That estimate was based on an analysis by the Real Estate Institute of Australia.

Also looking at housing supply, Accent Research polling commissioned jointly by the Housing Industry Association, Master Builders Australia, the Property Council of Australia, the Real Estate Institute of Australia and the Urban Development Institute of Australia found that the proposed discretionary trust reforms announced in the budget are likely to have significant consequences for the housing industry, development activity and small business investment.

You might remember that the Federal Government also announced in the budget that it intends to apply a minimum of 30% tax rate to the discretionary trust distributions. Well, the new polling found that more than 60% of small to medium residential and commercial property developers anticipate those changes will affect the timing and the viability of their projects. Among those developers, 37% said one or more projects would be cancelled entirely.

Now, remember, one of the primary reasons given by the government for the changes to the negative gearing and capital gains tax was to help first home buyers overcome what is termed intergenerational inequality. Well, this assistance to first home buyers will not happen if the development continues to pull back like it’s going to. The shortage of stock on the market creates greater competition and reignites price increases.

So no question, many of the warnings made immediately after those tax changes were announced are proving to be correct.

The bottom line, in simple terms, is that the rental market is contracting in size. That means greater competition amongst tenants for available properties. With higher interest rates, it’s simply inevitable that rent increases are going to be substantial going forward.

So we’re back to being in a pickle, where we continue to face the same fundamental problem. We’re not building enough properties, and we’re not providing enough incentive for investors to supply rental accommodation. Greater supply of rental properties will curtail future increases in rents, but it’s not going to happen.

Now, the last time the Federal Government eliminated negative gearing, it took two years before that decision was reversed. I sure hope it doesn’t take two years this time around, because we’re already seeing the consequences every day in our office. People are reaching out to us, genuinely stressed, asking us to help them find rental properties. And it’s really only been over the past month that we’ve started to see the true effects of the less amount of properties in the rental pool.

Now, just before I finish a quick update on our BELLissimo charity lunch on Friday the 16th of October at the Mondrian Hotel on the Gold Coast. All of our fixed seating tables are now sold out, but we still have our fantastic and fun Pool Club available. It’s a more casual seating environment, big smorgasbord of lunch and of course the all inclusive drink package. You can come along by yourself, come with a friend, get a group of friends together. We’d love to see you there. But you do need to book now. Click here for more details.

I look forward to being back with you in a fortnight’s time. Thanks for your time.