NG changes won’t break rental housing, but they will change it.
Free to all. And the third in my budget series.
Australia’s housing debate continues to treat rents as though they are simply a function of investor sentiment.
Remove negative gearing. Reduce capital gains tax discounts. Push investors out. Rents go up.
That’s the simplistic argument now doing the rounds following the latest Federal Budget announcements around changes to negative gearing and capital gains tax.
But the reality is far more nuanced.
Yes, changes to CGT and NG matter. They will influence investor behaviour, borrowing appetite, project feasibility and future housing supply. And yes, if fewer new rental dwellings get built over time, then rental pressures worsen.
But rents themselves are not set by landlords’ costs. They are set by a market’s capacity to pay. That distinction matters enormously.
A landlord can want another $100 a week in rent. But if the household income sitting behind that property can’t support it, then the rent simply won’t transact. The market caps it.
Which is why what we are increasingly seeing across Australia is not just higher rents, but more people sharing the same dwelling.
When rents rise faster than incomes, households adapt. Adult children stay home longer. Couples take in boarders. Friends rent together later in life. Spare bedrooms become income producing assets. Dining rooms become makeshift bedrooms. Garages get converted. Detached housing becomes quasi-share housing.
And that trend accelerates when affordability worsens. It is already happening at scale.
Average household sizes across many rental markets are beginning to edge higher again a long period of decline. Not because Australians suddenly prefer communal living - although an increasing cohort does - but because housing costs are forcing behavioural change.
This is also why the argument that removing investors automatically drives rents sharply higher is incomplete.
If some investors sell and those homes are bought by owner occupiers, the rental pool shrinks. But so too does rental demand. A renter household disappears at the same time.
The real issue is not the transfer of existing stock between owners and investors. The real issue is whether enough additional housing gets built. Especially housing designed for the way Australians are increasingly being forced to live.
And this is where housing design becomes critical.
The dwellings that will outperform over the next decade are not necessarily the biggest homes or the most luxurious apartments. They will be the homes best configured for multiple income streams and flexible occupancy.
Think:
Detached homes with genuine dual living capability.
Homes with separate ensuites across multiple bedrooms.
Four-bedroom homes with two living areas that can flex into extra sleeping zones.
Terrace housing with lockable bedroom wings.
Build-to-rent product designed around sharers rather than solo or couple occupants.
Smaller studio or micro-apartment formats near transport and employment.
Backyard homes and secondary dwellings.
Co-living product with private bedrooms and shared communal space.
Adaptable housing where part of the dwelling can be independently occupied.
In many ways, Australia is slowly shifting from a housing market built around ownership aspiration towards one increasingly shaped by income resilience. That has enormous implications for developers, investors and planners alike.
The irony here is that changes to CGT and negative gearing may actually accelerate this transition. Less speculative investment into generic housing stock could mean more focus on higher yielding, occupancy efficient housing formats instead.
Housing that works harder financially and helps - coupled with changes in building approach and infrastructure delivery (and charging) - gets more digs build.
Remember folks nothing much gets built when in comes to new homes across Australia - regardless of tenure - unless a developer or builder can make a decent profit.
Also in the years ahead, the rental market’s biggest challenge won’t simply be supply.
It will be how many people each dwelling title can economically support.
A Moment with Mike
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