When Jim Chalmers announced the government's pledge-breaking changes to negative gearing and capital gains tax arrangements, Australians were told the worst-case scenario was rents might go up by $2 a week as a result.
This guesstimate, based on Treasury modelling, is cold comfort to the millions of Australians who learnt this week that rents have increased by many times that figure during the June quarter.
In Sydney, rents have risen by $50 a week on average, the latest data shows. That's 25 times what Dr Chalmers claimed in his budget presentation. Rents in Brisbane rose by $20 a week over the same period. Adelaide and Canberra were up by $10 a week and the mean increase across all capitals was $20 a week.
While the government will say it is too soon to blame its changes, market analysts disagree. They argue landlords are already hiking rents in anticipation of the impact of the abolition of negative gearing on newly acquired investment properties on supply when rental occupancy rates are hovering around 1 per cent.
"With low vacancy rates everywhere, we're seeing this is still a landlord's market," one economist said. "The rent rises suggest that landlords are moving quickly to lift rents where market conditions allow, and this will only get worse."
The alternative modelling of independent economists and former Treasury officials (such as Peter Downes) submitted to the Senate inquiry was much closer to the mark - although still optimistic. They said rents could rise by around 6 per cent by 2029, adding about $38 a week to rental costs.
Property experts said this week that tenants could expect to face more challenging rental conditions ahead given that vacancy rates are near record lows nationally and housing supply is still constrained:
"In established areas, if a rental is sold, it's not being replaced," one analyst said. "This has meant a loss of rental stock. Vacancies are already tight in most areas and the result is that rents will continue to rise."
In attempting to solve one problem - helping first home buyers compete against investors - Mr Albanese and Dr Chalmers appear to have have created another.
The government's intention was to shepherd investors into new builds by axing negative gearing on existing homes bought as investments. It ignored the fact building costs have spiralled upwards at a rate far in excess of inflation.
With house prices now on track for their fourth consecutive monthly fall and listings and auction clearance rates plummeting, investors are wary of commissioning new builds. The finished home might be worth less than it cost to build.
Labor, as the Coalition points out, has had abolishing negative gearing and making sweeping changes to capital gains tax on its wish list for a decade. Bill Shorten and Chris Bowen, the then shadow treasurer, took these policies to the 2016 and 2019 elections. They were rejected both times.
The policies were dropped ahead of the 2022 election, which Labor won. During the last campaign, the Prime Minister repeatedly assured voters no changes were planned. His subsequent statement - "we've changed our position", which mimicked his response to criticism of the Stage 3 tax cuts in 2024, doesn't pass muster.
Scrapping the long-standing 50 per cent capital gains tax discount introduced by the Howard government and the negative gearing changes have made it much more likely owners of "grandfathered" investment properties will hang on to them as long as they can. This is already driving a buyers' strike which has seen a substantial fall in the numbers of properties on the market.
