The Perth property market has been one of Australia’s standout performers over the past several years. House prices have risen strongly, vacancy rates have remained exceptionally tight, and rents have climbed as demand has continued to outstrip supply.
Many expected affordability pressures to ease as the market matured. Instead, I believe a new risk has emerged.
The Federal Government’s tax reforms, due to commence from 1 July 2027, fundamentally change the economics of residential property investment. Negative gearing for established residential property will be limited to new builds, while the long-standing 50% capital gains tax discount will be replaced with an indexed system and a minimum tax on capital gains. Existing investors are largely grandfathered, but future investment decisions will be made under a very different framework. (Source: Australian Taxation Office)
The Government’s objective is understandable: encourage investment into new housing and increase supply.
The question is whether the transition will happen quickly enough.
Perth’s rental market is different
Perth enters this policy change from a position unlike almost any other Australian capital city. The city has experienced years of population growth, historically low vacancy rates, limited new housing supply and exceptionally strong rental demand.
If investor participation in established housing falls materially before enough new housing is delivered, the rental market could tighten even further. Every investment property purchased by an owner-occupier potentially removes one property from the rental pool.
That doesn’t automatically guarantee higher rents. Increased construction, weaker migration or softer economic conditions could offset some of the pressure. But if investor demand contracts faster than new housing supply expand, the consequences for tenants could be significant.
My outlook
Based on current Perth market conditions, I believe the most probable outcome over the next 12 months is:
These are not certainties. They are probability-based forecasts based on today’s market fundamentals and the likely impact of changing investment incentives.
Why rents and prices may move in opposite directions
Many people assume falling house prices automatically lead to cheaper rents. That is not necessarily true. Property prices are driven by buyers and sellers.
Rental prices are driven by the balance between tenants and available rental accommodation. If investor numbers fall while population growth remains strong, prices can soften while rents continue to rise.
In fact, that may be one of the unintended consequences of these reforms.
The political risk
Housing affordability has become one of Australia’s defining political issues. If these reforms successfully stimulate enough new housing construction, they may ultimately achieve their intended objective.
However, if they discourage investment faster than they create additional supply, renters—not investors—could bear much of the immediate cost through higher rents and reduced housing choice.
That creates what I believe is a genuine political risk. The reforms begin less than a year before the expected 2028 federal election.
If Perth experiences another sharp increase in rents during that period, housing affordability may become one of the dominant election issues. Whether that occurs will depend on how quickly new supply arrives and whether investor confidence returns under the new rules.
The next two years may determine whether these reforms are remembered as a successful long-term housing strategy—or as a policy that underestimated how quickly rental supply can contract when investment incentives change.
Disclaimer: This article reflects my personal market analysis and opinion based on publicly available information and current market conditions. It is not financial, taxation or legal advice. Property markets are influenced by many factors, and future outcomes remain uncertain.
Andrew Huggins is Principal of Ray White Urban Springs, the top real estate agent in the City of Belmont for over 20 years. He writes about Perth property trends, WA real estate, the Perth property market, housing supply and demand, property investment, Australian housing policy and long-term real estate strategy.
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