NAB warns of 30 per cent rent rise as Labor changes hit investors

Rents in Sydney and Melbourne could rise by up to 30 per cent as property investors charged tenants more to cope with no longer being able to negatively gear their properties, NAB has warned.

The four bank predicted investors would need to receive more rental income after Labor’s Budget cancelled negative gearing for existing homes from July 2027 if they were exchanged after May 12, depriving landlords of the ability to claim rental losses against their taxable income.

“The changes to the tax settings for investors in existing dwellings imply that gross rental yields will need to rise in order to compensate for the loss of tax benefits,” NAB’s head of Australian economics Gareth Spence said.

With rental markets still tight, he argued a one percentage point rise in yields to 4.5 per cent could add 25 to 30 per cent to rents, with annual rental income as a proportion of a home’s value expected to grow even if prices remained the same or fell.

“In the end, the adjustment towards more attractive gross rental yields will likely require a combination of both higher rents and lower dwelling values,” Mr Spence said.

“In any case, the bigger picture is that the equation for housing investors has changed substantially and gross rental yields will need to adjust such that residential housing offers relatively attractive risk-adjusted after-tax returns for investors when compared to comparable investment opportunities in real assets or elsewhere.”

NAB also pointed to a sharp fall in demand from property investors, with Australian Bureau of Statistics data showing an 8.6 per cent plunge in the number of new investor loans during the June quarter, as the value of new investor loans plummeted by 10.2 per cent.

“The fall in demand for investor credit has been relatively swift – interest rates rose in early 2026, the budget changes for investor lending were significant, borrowing capacity was reduced for investors and house prices have been softening,” it said.

“The adjustment to the investor share of lending will likely be ongoing over coming quarters and the investor share of the housing market will likely decline from its current level of about 30 per cent as lending pivots away from investors and towards owner-occupiers and first home buyers.”

NAB said it expected investor borrowing to weaken significantly through 2027.

“We forecast a sharp slowing in investor credit growth, that sees a peak to trough decline of over 1 per cent in investor credit through 2027,” Mr Spence said.

“This is a relatively weak outcome compared to prior cycles in investor credit growth.

“But until the housing market rebalances and finds new post-Budget clearing prices for both rents and dwelling values, growth in the investor share will likely remain weak.”