Two Perspectives on Australia's Negative Gearing Reforms

Sydney's Negative Gearing Reforms Are Working. The Deposit Problem Is Not Fixed Yet

As Australia's negative gearing reforms reshape the property investment landscape, two industry voices offer their perspectives on what the changes mean for first home buyers, investors, and the broader housing market. Luke Hayes is Director of Residential Project Marketing at Colliers. Chris Ferris is Co-Founder of Coposit.

Chris Ferris, Co-Founder of Coposit

The supply-side logic in the Colliers analysis is sound. Stronger investor demand for new apartments gives developers the confidence to build smaller, more affordable configurations. The data from Carrington Place already reflects this shift in real time, a meaningful signal that the reforms are beginning to influence developer behaviour before they have formally taken effect.

Some caution is warranted, however, on the assumption that investors will move decisively into new supply on the basis of tax settings alone. Capital growth remains the primary investment objective. The secondary market that follows new supply, resale buyers who do not carry the same tax advantages and do not have the same borrowing capacity, creates a natural ceiling on how far new prices can be pushed. The feasibility problem has been given more favourable conditions to work within. It has not been eliminated.

What the reforms have achieved is something that deserves more recognition than it has received. The levelling of the playing field between first home buyers and investors competing for the same established property is a structural correction that strengthens owner-occupier access to the market in a way that complements the supply-side measures.

The remaining gap in the policy response, however, is the deposit barrier. Supply reform and tax reform address the stock problem. They do not address the access problem. A first home buyer facing a $750,000 apartment still requires $75,000 upfront under a traditional deposit model. For a household paying market rents in Sydney, that represents a savings timeline of four to five years at minimum, during which the market continues to move.

Increased supply of more affordable apartments is a necessary condition for broader housing access. It is not a sufficient one. The deposit model is the remaining constraint that supply alone cannot resolve.

Luke Hayes, Director of Residential Project Marketing at Colliers

The Federal Budget's negative gearing reforms are set to redirect private investment towards new housing supply, with broad implications for developers and buyers. Project feasibility is tipped to improve alongside the delivery of a greater volume of smaller, more affordable apartments. The reforms will not just benefit investors; they are set to unlock more choice for first home buyers.

The shift comes after eight years of significant change in Sydney's new apartment market, which saw off-the-plan investors retreat while downsizers became a dominant buyer group. With developers increasingly designing projects around owner-occupier demand, the diversity of housing stock has narrowed, leaving little opportunity for first home buyers in the sub-$1 million price bracket.

In 2018, investors accounted for around 50% of off-the-plan sales inquiries in Sydney. Today, they represent closer to 15%. As investor demand cooled, developers shifted attention to owner-occupiers, driven predominantly by downsizers. Large three and four-bedroom apartments with price tags of up to $3 million became more common, with one and two-bedroom floorplans sacrificed. The feasibility of smaller and more affordable apartments was further constrained by rising construction costs.

Investors are often less concerned with aspect, finishes or floorplan efficiency, and focus on the mechanics of affordability and rental demand, typically favouring one and two-bedroom configurations. With investor demand now tipped to strengthen, Sydney developers will have greater confidence to deliver more apartments in smaller formats.

For Sydney-based developer Ellipse Property, these shifting market dynamics are already influencing real-time changes at its multi-stage Castle Hill masterplan, Carrington Place. Ellipse is seeing more investor inquiry for Lily Lane, Carrington Place's newly-launched second stage, than it did for its first stage, Atrium. Investors comprise 19% of sales to date at Atrium, whereas at Lily Lane they account for 27%.

The retention of negative gearing benefits for new builds has significant implications for first home buyers. Reduced investor demand for established housing combined with increasing supply of smaller, lower-priced apartments will unlock greater choice. The reforms will likely further accelerate the rise of rentvesting, offering a practical pathway into the property market.

Sydney's housing challenges will not be solved by any single policy. But the negative gearing reforms have the potential to increase the supply of critically needed new housing while balancing the product mix in the pipeline of new apartments.