Tenants caught in crosshairs of angry rent-hike debate

Australian renters are being warned they will be caught between US President Donald Trump’s soaring budget deficits, vested property interests and the federal government’s own changes to property taxes with the only relief likely to come from a large increase in new homes.

As new figures showed a small recovery in after-inflation wages for workers, the federal government fended off accusations its overhaul of negative gearing and capital gains tax concessions will lead to the largest increases in rents ever recorded.

Critics of the budget changes, which restrict negative gearing to people with existing properties and those who build new homes while also returning the capital gains tax system to its pre-1999 link to inflation, have ramped up claims they will both crash house prices and drive up rents.

Increases in rent, as measured by the Australian Bureau of Statistics, peaked in mid-2024 with the largest jumps recorded in Perth at more than 10 per cent. There were also sizeable lifts in Sydney (8.7 per cent) and Melbourne (6.8 per cent) while Brisbane’s peak of 9.8 per cent was recorded in mid-2023.

Since then, every capital city has recorded a slowdown in rent growth, but they remain high by historical standards. Over the past 12 months, rents have lifted by 5.3 per cent in Perth, by 3.5 per cent in Sydney and by 2.6 per cent in Melbourne.

Independent economist Chris Richardson said by the government’s own figures, it was difficult to accept that the negative gearing changes, expected to raise $2 billion in extra revenue over four years, would cause upheaval to a property market worth $12.8 trillion.

He said bigger factors were the run-up in government debt, led by the United States where gross debt will later this month surpass $US40 trillion, fuelling an increase in government interest rates. The interest rate on US debt is at its highest level in two decades and climbing.

Some investors faced with a risk-free 5 per cent return on government debt compared to lower rates on rental properties may exit the market.

“As a renter I wouldn’t be greatly stressed because of what’s going on because of the tax changes, but they are on the wrong side of a whole lot of things going on right now,” he said.

Fellow independent economist and long-time critic of negative gearing, Saul Eslake, said the laws of supply and demand still applied to the property market, even with the government’s tax changes.

He described some of the claims about the reforms as “bullshit”, accusing “vested interests” of trying to scare renters who were now in a better position to buy their first home because of the reduced interest of investors in existing properties.

“There are people who think the government should always underwrite the market to keep house prices going up,” he said.

“The share of investors buying existing homes had been growing, but now that is turning around, but the government seems unwilling to claim credit for what is happening.”

Eslake likened the current debate to the furore that accompanied the Hawke government’s abolition of negative gearing between 1985 and 1987. Opponents at the time claimed the move pushed up rents across the country, forcing the government to abandon its changes.

But the only markets to experience an increase in rental inflation were Sydney, where the vacancy rate was under 1 per cent, and Perth, where the vacancy rate was under 2 per cent. Rental growth actually slowed in other key markets, led by Melbourne and Brisbane.

Housing Minister Clare O’Neil, who faced a string of questions in parliament over the state of the rental market, accused the Coalition of uttering “mistruths” over the state of property across the country.

But she noted rent rises had slowed since the federal budget, arguing the government’s changes actually protected existing landlords while encouraging prospective investors to build new homes.

“In many respects, renters are the ones in our country who are bearing the brunt of 40 years of Australian governments not doing enough about housing. That is why our government is stepping up with the boldest agenda since the Second World War,” she said.

Greens leader Larissa Waters accused real estate agents of advising “rich property investors” to hike up rents as much as possible.

She said the government should deliver an immediate nationwide rent freeze.

Separate figures from the Bureau of Statistics released on Wednesday showed wages grew faster than inflation over the past three months, but since June last year they have gone backwards in real terms.

The wage price index increased by 0.8 per cent in the three months to June. Over the same period, inflation actually fell by 0.4 per cent.

But over the past 12 months, wages grew by 3.2 per cent – their slowest rate since 2022 – while inflation lifted by 3.8 per cent.

The situation is worse for workers in the private sector, with wages up by 0.7 per cent in the quarter and by 3.1 per cent over the full year.

Shadow treasurer Tim Wilson said the figures showed that real wages had fallen by $1600 a year over the life of the government, accusing it of fuelling inflation that was eating into workers’ take-home pay.

“Every time the government makes a decision, they’re stoking inflation and they’re continuing to put more pressure on Australian households. Wages are going backwards, and Australians are becoming poorer,” he said.

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