Tampering With Investor Policy Won’t Fix Housing - It Will Break the Rental Market
Australia’s rental crisis won’t be solved by pushing investors out.
Australia stands at a critical crossroads in housing policy. With vacancy rates still at crisis levels and rents rising faster than wages, governments are increasingly turning their attention to private investors as an easy political target. But the assumption that fewer investors will somehow make housing more affordable is dangerously misguided. In a system where private investors supply the majority of rental homes, policies that diminish investor participation don’t redistribute opportunity - they shrink the rental pool, intensify competition, and push vulnerable renters into even more precarious situations.
Housing policy is always a balancing act, but when governments start tampering with investor incentives without thinking through the second-order effects, the rental market is usually where the damage shows up first. Reducing rental stock while demand is rising will only make housing less affordable for the people who need it most.
When “Fixing” Investors Breaks the Rental Market
Australia’s rental market has finally shown the faintest signs of easing, but it is still nowhere near “comfortable”.
New data from REA Group’s PropTrack shows the national rental vacancy rate rose to 1.48% in January 2026, the highest level since early 2022. But that is still well below the 3–4% vacancy rate generally considered a balanced market.
Over the year to December 2025, the national median rent rose to $650 per week, up 4.8% – about $1,560 extra a year for the typical renter. Regional rents rose even faster, increasing 7.3% year-on-year.
Against that backdrop, governments are floating new taxes and restrictions aimed squarely at property investors – from changes to tax concessions, to tougher land tax thresholds, to more interventionist tenancy rules. These policies are often framed as helping renters and first-home buyers.
The risk is that, if mishandled, they do exactly the opposite.
Why Investor Demand Matters for Renters
Australia’s rental system relies heavily on small private investors rather than large institutional landlords. According to ABS and ATO-linked estimates:
Australia has around 10–11 million dwellings.
Roughly 2.2 million dwellings are held by property investors – about 22% of households owning at least one investment property.
In other words, a large share of the rental stock exists only because households have chosen to deploy capital into investment properties. When that cohort grows, more homes are available for rent; when it shrinks, rental stock contracts.
Recent finance data underline how important investors have become to overall housing supply and turnover:
By late 2025, around two in every five new mortgages were for investment purchases, with investor lending up more than 12% over the year and about 14% in just the September 2025 quarter.
Critics rightly point out that much of this activity shuffles ownership of existing stock rather than creating new homes. But from the renter’s perspective, what matters is how many dwellings are available to rent at any given time.
When a dwelling moves from owner-occupied to investor-owned, it usually becomes part of the rental pool.
When an investor sells to an owner-occupier, that dwelling is removed from the rental pool.
So, while investor activity doesn’t automatically build new roofs, it does determine how many of those roofs are accessible to renters.
If policy settings push a meaningful number of investors to sell, the result is simple: less rental stock, fiercer competition, and higher rents.
The “Let’s Force Investors to Sell to First-Home Buyers” Argument
A popular political narrative says:
“If we make investing less attractive, landlords will sell, and renters will be able to buy those homes. Problem solved.”
There are several problems with this logic.
1. Many renters are nowhere near being able to buy
Housing affordability data is blunt:
The State of the Housing System 2025 report estimates a median-income household now needs 10.6 years to save a deposit, and mortgage repayments on a new loan consume about 50% of median household income.
In 2024–25, about 1.26 million low-income households were in housing stress (spending more than 30% of disposable income on housing). Around one in five households in the rental market were low-income households in financial stress.
These households are not poised to suddenly buy the properties they rent simply because their landlord is under pressure. They don’t have the deposit, the borrowing capacity, or the income stability.
So, if a significant chunk of investor stock is forced onto the market, a minority of better-off renters and new buyers might manage to purchase.
The majority, particularly in lower socioeconomic cohorts, would simply find:
Their existing rental has been sold and is no longer available to rent; and
They are now competing with more people for fewer lower-cost rentals.
In other words, the people who can least afford to buy are the ones most likely to be displaced.
2. Lower-priced investor stock is critical to vulnerable renters
A large portion of investor-owned dwellings sits in the ‘more affordable segments’ of the market – older apartments, outer-suburban houses, small units. These are precisely the types of properties relied upon by:
Low-income workers
Single-parent families
Students and recent migrants
People on income support
We already know that low-income renters are under acute pressure. For example:
Research for the National Housing Supply and Affordability Council found that more than half of low-income renters were in housing stress in 2023.
Other studies show that in some cohorts, over 80% of very low-income renting households face rental stress, with a national shortage of hundreds of thousands of affordable rentals.
If policy settings trigger a wave of investor exits, the lower end of the rental market is exactly where the damage will be concentrated. The result is not a nation of happy new homeowners; it is:
Rising homelessness risk
More people crowding into inappropriate or unsafe accommodation
Greater strain on already-stretched social housing and homelessness services
Public Housing Supply & Demand in Australia
Supply of Social Housing
In 2024–25 there were approximately 426,000 households in social housing programs nationally; about 286,000 (67%) of these were in public housing. Social housing includes public housing, community housing and Indigenous programs.
Despite growth in household numbers overall in Australia, social housing has shrunk as a share of total housing - from about 4.8% of all households in 2011 to just 4.1% in 2024.
In the largest states, public/social housing as a share of all households is especially low:
o NSW ~4.5%
o Victoria ~3.0%
o Queensland ~3.5%
o Western Australia ~3.8%
This decline in social housing is occurring while overall housing demand grows, meaning the proportion of available subsidised homes is falling relative to need.
National (Aggregate) Waiting Lists
Latest national reporting indicates around 69,700 households on the waiting list for public housing and 7,900 for state-owned and managed Indigenous housing (SOMIH) in 2023 – with the number of those in “greatest need” rising.
Other advocacy reports suggesting broader measures show around 184,000+ households sitting on waiting lists for social housing when community housing waits are factored in.
Typical Waiting Times
State examples:
In New South Wales, the median wait for general social housing applicants was about 14.9 months as of late 2025.
In some areas of NSW, wait times for a small unit may fall into a 5–10 year range, and even longer for larger homes.
In Queensland, many applicants are waiting around ~2.5 years on the register, particularly for those not in the highest priority category.
In the ACT, average waits for standard housing can exceed 4–5 years (e.g., about 1,765 days for standard applicants) with shorter waits for priority cases, reflecting smaller markets.
According to Homes Victoria and peak housing advocacy data, there were over ~55,000 people on the social housing waiting list in Victoria as of late 2024/early 2025. This includes people waiting for public housing and other forms of social housing.
Average wait times in Victoria, for priority applicants, are around 18–20 months.
Social housing waitlists have grown significantly over the past decade - both in absolute numbers and the proportion of applicants in greatest need.
Growth in supply is extremely slow: some advocates estimate that social housing construction is around 3,000 dwellings per year, meaning it would take centuries to meet current expressed demand at that rate.
These long waits and under-supply contribute to increased private rental pressure, homelessness risk and housing stress for low-income and vulnerable households.
Supply and Demand: The Equation You Can’t Legislate Away
At the heart of this is a simple economic reality.
Demand is rising.
Population growth, migration, smaller household sizes and lifestyle changes are all adding to the number of households who need somewhere to live.Supply is constrained.
Construction costs, planning bottlenecks and labour shortages mean we are not building enough new homes. The National Housing Supply and Affordability Council warns that the target to build 1.2 million new homes under the Housing Accord is unlikely to be met, with housing supply at its lowest in a decade.Vacancy rates remain extremely tight.
Even after the recent uptick, a vacancy rate of 1.48% is still far below the pre-COVID rate of 2.3% and the 3–4% range generally considered balanced.
In that context, pushing investors out of the market reduces the supply of rental homes faster than new supply can be brought on.
With demand still rising, fewer available rentals means:
More applications per listing
Longer queues at inspections
Stronger competition among renters
Upward pressure on rents across the remaining stock
Policy cannot wish away the supply-demand equation. It can only change who wins and who loses within it.
Right now, poorly designed investor-hostile policies risk shifting the pain onto precisely the renters they claim to protect.
But Doesn’t Investor Activity Also Push Up Prices and Rents?
There is a valid counter-argument worth addressing.
Analysts have pointed out that a lot of investor lending doesn’t expand total dwelling supply – it simply reallocates existing dwellings between owner-occupiers and investors. Some commentators argue that four out of five investor loans just change who lives in which home, rather than funding new construction.
That critique is important, but it does not mean investors are irrelevant to rental outcomes. Two things can be true at once:
Investor activity that merely bids for existing dwellings doesn’t solve the overall housing shortage.
Within that fixed stock, the level of investor participation determines how many dwellings are available to rent.
In other words:
If we want lower rents within the current system, we need both:
More total dwellings, and
Sufficient investor & non-market ownership of those dwellings as rentals.
The policy challenge is not to “get rid of investors”; it is to channel investor capital into genuinely expanding and maintaining rental supply, especially at the affordable end.
Policy Risks: When Investors Head for the Exits
We are already seeing early signs of investor nerves.
Recent research cited by realestate.com.au suggests around one in three property investors are considering exiting the market in response to proposed federal tax changes, with warnings that any large-scale sell-off would deepen the rental crisis.
Layered on top of:
Rising mortgage rates over the past two years
Higher land tax and insurance costs in some jurisdictions
Increasing regulatory complexity and perceived hostility towards landlords
…it doesn’t take much to tip marginal investors into selling.
The blunt reality is that you can’t pull a large chunk of the rental stock out of the market and expect rents to fall.
What Would Constructive Solutions Look Like?
If the objective is more affordable, secure housing, especially for lower-income renters, then policy needs to attack the problem on several fronts simultaneously.
1. Grow total housing supply – especially at the lower end
Streamline planning and approvals for infill and medium-density projects in well-located areas.
Tackle bottlenecks in construction – skills, materials, infrastructure sequencing – to improve the feasibility of new projects.
Expand social and affordable housing programs to directly add stock that is insulated from speculative pressures.
2. Channel investors into adding rental stock, not just trading it
Rather than treating all investors as the problem, governments can:
Offer targeted incentives (or remove disincentives) for investors who fund new dwellings – e.g. off-the-plan purchases that expand total stock, or build-to-rent projects with long-term rental commitments.
Encourage conversions from short-stay to long-term rentals where appropriate, potentially through differential tax or regulatory treatment.
Maintain predictable, long-term tax settings so investors can plan, instead of lurching from one reform scare to the next.
3. Protect renters without shrinking supply
Stronger renter protections and more rental supply are not mutually exclusive – but design matters.
Focus on minimum standards, reasonable security of tenure and transparent rent-increase rules, rather than policies that make operating long-term rentals financially unviable.
Expand targeted income support (e.g. Commonwealth Rent Assistance and state supplements) for low-income renters, recognising that many will not be able to buy even in the medium term.
4. Support pathways to ownership – for those who can realistically buy
For households on the cusp of ownership:
Shared-equity schemes, deposit guarantees and well-designed first-home buyer assistance can help, provided they are carefully targeted and do not simply inflate prices.
Financial education and advice can help renters understand whether ownership is genuinely in reach, or whether policy needs to focus on long-term secure renting instead.
5. Recognise that different markets need different levers
Conditions vary sharply between cities and regions. For example, January 2026 vacancy rates ranged from under 1% in some markets (such as Hobart) to around 1.8% in Melbourne, which is now seeing some investor return due to relative affordability and improving yields.
Policy needs to be nuanced enough to reflect these differences, rather than assuming a single national lever will work everywhere.
What about Capital Gains Tax reform?
There is an argument for tweaking tax to favour investment into new rental supply – but CGT is a blunt, slow-burn lever. State land tax / stamp duty settings are usually a more powerful, immediate way to grow rental stock.
Right now, an individual investor who holds an asset for more than 12 months generally gets a 50% CGT discount on the gain when they sell. The criticism (from Treasury, Grattan, Ken Henry, etc.) is that this discount is untargeted – it rewards any eligible capital gain, whether or not the investment added to housing supply.
From a supply side point of view, a more rational version would be:
Full/standard discount for new builds that expand rental supply, and/or
Reduced discount for existing dwellings that don’t add new stock.
We’ve actually dabbled in this logic before:
The Commonwealth’s 2018 “Boosting affordable housing” measure offered an extra 10 percentage-point CGT discount for investors in qualifying affordable housing, on top of the 50% discount – but only where the dwelling was used for affordable rental for a minimum period.
The National Rental Affordability Scheme (NRAS) used tax offsets and payments to incentivise construction of new dwellings rented at least 20% below market.
So, the conceptual argument is, if you’re going to offer a CGT concession, skew it so the best deal goes to capital that creates new rental dwellings, not just trades existing ones. That’s entirely consistent with the “reward investor activity that grows rental stock” thesis.
However, an important nuance is that CGT is realised at sale, not during ownership. Therefore the behavioural impact is:
Forward-looking: where new money chooses to go (new vs existing), and
Back-loaded: investors respond to it, but not as sharply as to things that hit cash flow today.
What then are the likely effects if we juiced CGT concessions for new build rentals only:
a) Capital shifts toward new supply
Developers selling off-the-plan and BTR projects can market “enhanced CGT treatment” as part of the return story.
Over time this tilts investor demand toward new stock, lifting construction feasibilities at the margin.
That grows the overall number of dwellings and, if retained as rentals, expands the rental pool, helping stabilise rents system-wide in the medium term.
b) Less investor demand for existing stock (good and bad)
If new builds get the tax carrot, existing dwellings become relatively less attractive to investors.
Two plausible consequences:
Some existing rentals get sold to owner-occupiers instead of another landlord – reducing the pool of rental properties in that sub-market.
First-home buyers might face slightly less competition from investors at the margin, which is politically attractive.
How that lands in practice:
In middle and upper price brackets, that might be broadly fine – some renters convert to owners.
In the lower-priced cohort, many tenants simply cannot buy. They’d face shrinking affordable rental stock until new, cheaper product is built – which may take years and often comes in a different form (e.g. new apartments vs old walk-ups).
So, a CGT-tilt helps future supply, but it does very little to protect the existing low-cost rental pool in the short term.
CGT incentives can nudge investment toward new supply, but on their own they’re a slow, blunt instrument and won’t rescue existing rentals.
Would changes to state property taxes be a greater incentive?
For most investors and developers, the big line items are:
Up-front transaction taxes – stamp duty, foreign surcharges
Ongoing holding taxes – land tax, absentee/foreign surcharges
Those hit cash flow today, and so they bite harder in feasibility models than a hypothetical CGT bill 10–20 years away.
You can already see how powerful targeted property-tax incentives can be in the build-to-rent (BTR) space:
NSW: eligible BTR projects can get 50% land value reduction for land tax plus exemption/refund of surcharge purchaser duty and land tax surcharges.
Victoria: 50% land tax concession and absentee owner surcharge exemption for qualifying BTR for up to 30 years.
Federal: BTR developments now get a 4% annual deduction for capital works, improving after-tax returns.
These concessions are explicitly about tilting investment toward long-term rental product.
For small investors, an AHURI report last year highlighted that 90% of investors are “small-scale” (1–2 properties) and are particularly sensitive to land tax and cash-flow-relevant settings.
So, there is a much stronger case that state tax levers are more immediate and powerful than CGT levers in growing rental stock.
The Bottom Line: Don’t Fix Housing by Breaking Rentals
Australia’s housing system is in genuine crisis – for renters, buyers and would-be homeowners alike. But punishing or spooking investors, without simultaneously boosting new supply and non-market housing, is a dangerous shortcut.
More investor activity, when directed into growing and maintaining the rental pool, generally means more rental stock.
More rental stock, in a market still short of balance, is a necessary (though not sufficient) condition for stabilising or moderating rents.
Forcing or incentivising the sale of investor properties at scale, in a context where many tenants cannot buy, risks pushing the most vulnerable households into a dire position with fewer affordable rentals and higher competition.
You cannot legislate away supply and demand. The only durable path to lower rents and greater housing security is to increase the total number of homes and ensure enough of them remain available as rentals, while protecting the people for whom home ownership is simply not on the table – now, or in the foreseeable future.
