Australia’s housing crisis meets economic reality
Australia’s housing crisis has reached a tipping point, but listening to the federal government, you’d be forgiven for thinking everything is running smoothly and under control!
2026 would have to be the first year the budget is still in the headlines three months after it was delivered. And that’s because it is proving to be an unmitigated disaster for the economy, investors, and homeowners, and now renters.
At the centre of the latest policy storm is the Treasurer Jim Chalmers and Housing Minister Clare O’Neil’s insistence – backed by Treasury ‘modelling’ – that recent tax adjustments impacting property investors will lead to a mere $2-a-week rent increase.
As an aside, we have to remember the almost universal failure of all modelling Labor has relied on, from electricity bill reductions of $275 by 2025 to house prices rising by a gentle two per cent.
In the real world, where everyday Australians are attempting to keep a roof over their heads, Labor latest rental increase claim is a total disconnect from basic economic reality and very likely gaslighting.
When major financial institutions and top industry bodies – who, unlike the Treasurer and Housing Minister have qualifications in economics and finance – warn that investors stripped of tax concessions may need to raise rents by as much as 30 per cent to recoup losses, brushing off these concerns with a blanket “$2 claim” is face-saving writ large.
The flaw in the ‘modelling’
Property investors today face compounding pressures, from higher holding costs, rising interest rates, and elevated land taxes to insurance hikes and tighter regulation on lease terminations as well as rental controls.
The proposition that a landlord, when faced with hundreds, even thousands of dollars in additional monthly expenses or diminished tax offsets, will simply absorb the loss or pass on a fraction of a coffee’s worth of rent per week defies economics and what we know of human behaviour.
In a market driven by supply and demand, cost increases inevitably float downstream.
By targeting property investment without offering immediate, scalable solutions to the immigration-fuelled structural supply shortages, policy decisions risk driving smaller property investors out of the market altogether. Less investment means fewer rental properties, which in turn squeezes available stock and pushes prices even higher for the nation’s three million tenant households.
A basic understanding of supply and demand reveals increased government interventions and reduced tax concessions are tantamount to higher holding costs and lower investment yields.
This does two things. First, it forces existing investors to raise rents to compensate. Second, it disincentivises new property investors from entering the market. The latter results in two further consequences. Existing stock isn’t converted to rental accommodation and competition for a smaller pool of rental properties drives rents up. Meanwhile, developers become shy about developing because there are fewer buyers, and here we note the following drops in investor loan applications:
- Commonwealth Bank of Australia (CBA) reported a 28 per cent drop in investor home loan applications following government property tax announcements, compared to a 9 per cent decline in owner-occupier applications over the same period.
- Westpac reported a total 20 per cent drop in home loan application volumes, with investor loan applications falling 26 per cent.
- In its Q3 FY26 update, NAB reported a 17 per cent quarter-on-quarter drop in investor loan applications
- ANZ has also reported double-digit quarterly declines in investor loan applications.
- The Australian Bureau of Statistics (ABS) June Quarter 2026 Lending Indicators highlighted an 8.6 per cent quarter-on-quarter contraction in investor loans.
A pattern of unrealistic commitments
The current scepticism surrounding rent forecasts follows a growing public fatigue with Labor’s projections that routinely fail to match real-world outcomes.
Whether it is promises regarding energy bill reductions that never materialise on utility statements, or claims of real wage growth erased by persistent inflation, the public has grown increasingly wary of Labor’s gaslighting.
For young Australians and middle-income families, the consequences of these policy missteps are serious.
A single-digit percentage increase on a median weekly rent of $700 translates into hundreds of additional dollars lost from household budgets every month, far outstripping the most modest of wage gains.
Younger workers, who are already struggling to save for a home deposit while paying record-high rents, find themselves permanently locked out of property ownership.
And those young workers who recently took advantage of the government’s first home buyer equity scheme have seen house price falls wipe out their savings and leave them owing more than their property is worth.
Encouraging private capital to fund housing supply has historically been a pillar of the Australian market. When policy penalises small-scale property investors, it undermines private market solutions and further burdens an already stretched public sector.
Broad economic intersections
The housing crisis is now the most visible symptom of a broader macroeconomic malaise wrought by inept and unqualified economic managers. But beyond the rental market, broader indicators also point to systemic headwinds:
|
Economic pressure point |
Real-world impact on housing & renters |
|
Negative productivity growth |
Restricts broader wage growth, making elevated rent costs harder to absorb. |
|
High construction & business costs |
Drives up the cost to build new dwellings, slowing down supply expansion. |
|
Sustained high inflation |
Elevates interest rates, directly increasing mortgage costs for both buyers and landlords. |
|
High population inflows |
Drives immediate, localised rental demand in major metropolitan centres. |
When high migration rapidly increases housing demand at the exact moment tax and regulatory changes disincentivise private rental supply, price spikes are mathematically guaranteed.
The path forward
To fix Australia’s housing market, we need a change of leadership that rises above rhetorical spin and acknowledges the basics of market dynamics.
You cannot tax, regulate, or model your way out of a housing shortfall without reducing physical demand and incentivising actual supply.
If a government genuinely wishes to protect renters, the strategy has to pivot away from punitive measures on property investment. Step one involves removing regulatory bottlenecks and streamlining planning approvals to get housing projects off the ground faster. Step two is to return to providing stable, predictable policy settings so investors feel secure providing rental stock. And finally, ensuring population targets match the actual physical delivery of new homes.
Until policy is grounded in economic rationality, everyday Australians – both renters struggling with skyrocketing lease renewals and investors attempting to balance their mortgages – will continue to pay the price.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
