The Property Investor the Government is Targeting Probably Is Not Who You Think

The data tells a very different story to the headlines.

The housing affordability debate in Australia has a villain. You have seen the headlines. Greedy investors. Landlords hoarding homes. Wealthy property owners squeezing first home buyers out of the market.

There is just one problem with that story. The data does not support it.

With the federal government modelling changes to negative gearing and the capital gains tax discount ahead of the May 12 budget, it is worth stepping back and looking at who actually owns investment property in Australia. Because the policy being debated and the people it will affect are two very different things.

Who Actually Invests in Property

According to the most recent Australian Taxation Office data, 2.26 million Australians own at least one investment property. That is roughly 20% of all taxpayers.

But look at what those investors actually look like.

72% own just one property. Not a portfolio. Not a collection of assets spread across the country. One investment property, usually bought to supplement superannuation and build financial security outside the system.

18% own two properties.

Only 9.5% own three or more.

The proposed negative gearing cap targets that 9.5%. Less than one in ten investors. The other 90% are, in theory, untouched by the policy as proposed. But as we will come to, the consequences do not stay contained to that 9.5%.

The Income Reality

The narrative that property investors are high income earners does not hold up either.

ATO data shows 64% of property investors earn less than $80,000 a year. Only 7% earn more than $180,000. The average negative gearing deduction across all investors is $8,700.

These are not executives and landlords building empires. Professionals, teachers, nurses, tradies, and small business owners make up the largest share of property investors in Australia. People who bought one property because they did not trust superannuation alone to fund their retirement. People making a completely rational financial decision with the tools available to them.

The Negative Gearing Breakdown Nobody Is Talking About

Here is the statistic that should reframe the entire debate.

Of the 1.117 million Australians who are negatively geared on an investment property, 810,875 own just one property. That is 73% of all negatively geared investors claiming a tax concession on a single asset.

The concession being described as a lurk for wealthy investors overwhelmingly benefits people with one property. People who are cash flow negative because their interest costs exceed their rent. People for whom the annual tax offset is often the difference between holding and selling.

The total negative gearing deductions claimed across all investors in 2022-23 was $10.4 billion. Of that, $5.6 billion was claimed by single property investors. More than half.

This is not a wealthy landlord story. It never was.

Why the Policy Hits the Wrong End of the Market

The investors with three or more properties are, on the whole, the least negatively geared. They have owned longer. Their mortgage balances are lower relative to the value of their assets. Their LVR is often 50 to 60%, not 80%. Their interest costs relative to rent have reduced significantly over time. Many are positively geared or close to neutral already.

The policy targets the group that needs the concession least.

The mum and dad investor with one property bought recently at high prices, carrying an 80% LVR mortgage at elevated interest rates, is the most negatively geared investor in the system. And the proposed policy does not target them directly.

But it will affect them indirectly. When the financial case for holding weakens at the 3+ property tier, those investors make decisions. Some exit. Some stop buying additional properties. Either way, rental supply tightens. And in a market where national vacancy rates are already sitting around 1.1%, there is no buffer to absorb that.

The Company and Trust Question

Some people assume that investors with larger portfolios will simply restructure into companies or trusts to sidestep any changes. The reality is more complicated.

The Parliamentary Budget Office modelling confirms the proposed changes would apply to individuals, partnerships, trusts, and companies. Trusts do not provide a clean workaround. In most states they also attract significant land tax penalties of their own.

Companies avoid the trust issue but lose the 50% capital gains tax discount entirely, paying a flat 30% corporate tax rate on gains. Restructuring into a company to avoid a negative gearing restriction creates a larger problem at exit.

And the May budget is reported to include simultaneous changes to trust taxation. The backdoor is being closed at the same time as the front door.

The CGT Change Hits Everyone

The proposed reduction in the capital gains tax discount from 50% to 33% is not targeted at the 9.5% of investors with three or more properties. It applies to every single property investor in Australia when they sell.

On a $400,000 capital gain at a 37% marginal rate, that change costs an additional $24,680 in tax at exit. On a $600,000 gain it is $37,020 more. On a property held for ten years where negative gearing losses were also restricted during the hold, the combined impact could easily exceed $50,000 to $80,000 compared to the position today.

That is a material change to the investment case. Not a marginal one.

What Happens to the Incentive

Property investment has always rested on three things working together. Annual tax relief through negative gearing while you hold. Capital growth over the holding period. And a favourable exit through the 50% CGT discount when you sell.

The proposed changes reduce the first and cut the third. Both at the same time. In a high interest rate environment. Against competing asset classes like superannuation and shares that remain untouched.

When you strip away the annual holding incentive and reduce the exit incentive simultaneously, the risk-adjusted return on property changes. Rational investors start comparing options. Super contributions taxed at 15%. Franked dividends on shares. Term deposits. Property starts to look ordinary by comparison when both its primary tax advantages are under pressure at once.

Fewer investors buy. Fewer investors hold. Rental supply shrinks. Rents rise. The people the policy is designed to help pay for it, in higher rent, for longer.

What Happens to Rent

Investors who stay will do what any business does when costs rise. They pass them on.

Without the annual tax offset on property 3, that property needs to get closer to cash flow neutral on its own. The only lever available is rent. In a market with a national vacancy rate of around 1.1%, landlords have the pricing power to make that happen. Tenants have very few alternatives.

The renters who cannot buy, including younger Australians who choose to rent for flexibility and lifestyle, absorb the difference. The policy designed to help them with housing affordability makes renting more expensive.

The Construction Consequence

There is a downstream consequence that is not getting enough attention.

Investors, particularly those building portfolios, are a critical buyer segment for new residential construction. Apartments, townhouses, dual occupancies, house and land packages. Developers rely on presales to satisfy lenders and get projects off the ground. Without sufficient presales, feasibility breaks and projects do not proceed.

Building approvals in Australia fell 13.8% in January 2026. Construction completions are already running well below what is needed to meet housing targets. Reducing investor incentives at this moment removes demand from the one part of the market where supply growth actually happens.

The housing supply crisis does not improve. It gets worse. At exactly the moment the policy claims to be fixing it.

What Investors Should Be Doing Now

Nothing has been legislated. The budget lands on May 12. Grandfathering provisions are likely for existing holdings. But there are things worth doing before that date regardless of what the budget delivers.

If you own investment property and have never obtained a depreciation schedule, get one now. Division 40 plant and equipment deductions accumulate whether you capture them or not. If losses on a third property are quarantined in future, that accumulated Division 40 pool offsets the capital gain at sale. It is a real dollar benefit, deferred rather than lost, but only if it has been documented.

If you have renovated an investment property and do not have records of the cost, a Chartered Quantity Surveyor can reconstruct those costs. They form part of your cost base and reduce your capital gain at exit. Most accountants are not capturing this because they do not have the construction cost expertise to do so. That is money left on the table at sale.

If you are planning to sell an investment property, get your cost base properly assessed before settlement, not after. The cost base calculation at exit is the most important number in the portfolio right now. Renovation costs, Division 40 residual plant and equipment values, and Division 43 capital works all belong in that calculation. Without a Quantity Surveyor, most of them are missing.

The Bottom Line

The proposed changes target 9.5% of property investors. But the consequences flow through the entire rental market, the construction pipeline, and the financial decisions of the 90% who are watching what happens.

The debate has been framed around the wrong people from the start. The data has always told a different story.

It is time the policy caught up with it.