Negative Gearing vs Labor Policy: What 1985 Taught Investors

The short answer. Australia quarantined negative gearing once, and then reversed it. In 1985 the Hawke government legislated to quarantine rental losses so they could only be deducted against rental income rather than against salary and wages; per the Senate Economics References Committee's own account, "the changes only applied to real estate purchased after 17 July 1985", losses could still be carried forward against future rental profits and capital gains, and "in 1987, the decision to quarantine negative gearing was reversed (with effect from 1 July 1987)" (Senate Economics References Committee, ch 9).

What happened to rents in those two years is genuinely contested, and anyone telling you it is settled is selling something. Both positions are on the public record in the same Senate inquiry. The Real Estate Institute of Australia told the committee that over the two years of the quarantine "rents increased by 57.5 per cent in Sydney, 38.2 per cent in Perth and 32 per cent in Brisbane". Saul Eslake told the same committee that this was a misreading: rents "had only risen rapidly in two markets, Sydney and Perth, because both cities had unusually low rental vacancy rates at the time", while in other capitals with higher vacancy rates "growth in rents were either unchanged or, in the case of Melbourne, actually slowed". The committee also recorded the view that the reversal was "in the main, a response to political pressure". We previously published a single 30 per cent Sydney figure attributed to the Reserve Bank; that attribution was wrong and it has been withdrawn.

How many Australians are negatively geared, on the latest published ATO figures. In the 2023-24 income year 2,335,540 individuals had an interest in a rental property. Of those, 1,266,454 — 54.2 per cent — reported a net rent loss, and 1,069,086 were neutral or in profit. A year earlier, in 2022-23, the split was almost even: 1,117,175 in loss against 1,143,905 neutral or in profit out of 2,261,080 (ATO Taxation Statistics 2023-24, Individuals statistics, Table 8). The majority position flipped from profit to loss in a single year.

Sources last verified 31 August 2026: Senate Economics References Committee, Chapter 9, ATO Taxation Statistics 2023-24 — Individuals statistics, ATO — rental expenses, ATO — rental properties, other tax considerations, RBA — Impact of Taxation submission, Treasury — National Housing Accord and Budget 2026-27 tax reform. This page describes what has already happened and what named parties have published. It does not predict future tax policy, and it is general information rather than tax or financial advice.

Negative gearing is one of those topics where everyone has a strong opinion and almost nobody has done the homework.

Your uncle at Christmas dinner reckons it only benefits the rich. The property spruiker on YouTube says abolishing it will crash the market. A Labor backbencher calls it an unfair subsidy. A Liberal senator calls it the backbone of mum-and-dad investment.

They're all wrong. Or at least, they're all working from incomplete data.

Because we've actually run this experiment before. In 1985, the Hawke Labor government abolished negative gearing on rental properties. The policy lasted less than two years before they reversed it. And the data from that period tells a story that's inconvenient for pretty much everyone.

Let me walk you through what actually happened.

What negative gearing actually is (because half the debate gets this wrong)

Quick primer for anyone who needs it.

Negative gearing means your investment property costs more to hold than it earns in rent. The shortfall — including loan interest, rates, insurance, management fees, repairs — gets deducted from your taxable income.

So if you earn $120,000 and your investment property loses $15,000 a year after all costs, your taxable income drops to $105,000. At the 37% marginal rate, that saves you $5,550 in tax. You're still out of pocket $9,450, but the ATO picks up part of the tab 1.

This is not a property-specific rule. It applies to any investment — shares, businesses, anything that produces assessable income. The reason it's associated with property is that property is the only asset class where most Australians use significant leverage, which amplifies both the losses and the deductions.

At PremiumRea we design portfolios to avoid relying on negative gearing. The target is positive cash flow from the start, through renovation and multi-tenancy strategies. For what that has actually produced: across the 345 settlements we publish as open data (offer dates January 2023 to September 2025) the median gross yield after works was 5.77 per cent, computed as annualised weekly rent divided by purchase price plus works — a recorded historical result for those specific properties, not a target we promise on a future purchase 12. We would still be naive to ignore the policy environment, because any change to negative gearing rules affects investor sentiment, prices and rental supply.

1985: The Hawke experiment

In 1985 the Hawke government legislated to quarantine losses made from owning rental properties, so that those losses could be deducted only against rental income and not against salary or other assessable income. Losses were not destroyed — they could be carried forward to offset future rental profits and capital gains on sale. The change applied only to real estate purchased after 17 July 1985; property already held was unaffected 3.

The stated goal was housing affordability. The argument was that negative gearing inflated property prices by subsidising investors who competed with first home buyers.

The quarantine was reversed in 1987, with effect from 1 July 1987. The Senate Economics References Committee records two official reasons: uniformity of tax treatment of interest costs across investment types, and a judgment that the benefit to high income earners had been adequately countered by other reforms, notably the introduction of capital gains tax in September 1985. It also records that "some students of the decision have suggested it was, in the main, a response to political pressure" from an industry arguing "(rightly or wrongly)" that the quarantine had driven up rents 3.

What the quarantine did to rents is contested, and the contest is on the public record. We used to state one side of it as settled fact, sourced to the Reserve Bank. That attribution was wrong and we have withdrawn it. Here is what named parties actually told the Senate inquiry:

• The Real Estate Institute of Australia submitted that in the two years the quarantine was in place, "rents increased by 57.5 per cent in Sydney, 38.2 per cent in Perth and 32 per cent in Brisbane" [4].
• Saul Eslake disputed the reading directly: the alleged landlords' strike "was based on an erroneous reading of history: rents had only risen rapidly in two markets, Sydney and Perth, because both cities had unusually low rental vacancy rates at the time. Yet in other capital cities, where vacancy rates were higher, growth in rents were either unchanged or, in the case of Melbourne, actually slowed" [4].
• John Hawkins made a related point about the reversal: "It has been claimed that after the restoration of negative gearing [in 1987] there was an increase in residential housing investment. But correlation does not prove causation. The stock market collapsed in late 1987 and it was this more than the restoration of negative gearing that made property investment appear more attractive" [4].

We have also removed two figures that used to sit in this section — a roughly 20 per cent national fall in new investment loans, and a characterisation of what Keating said afterwards — because we could not trace either to a source we were willing to publish a link to. If you have seen them quoted elsewhere, ask the same question we did: sourced to what, exactly?

The honest conclusion is narrower than the one we drew before. The 1985-87 episode does not show that removing negative gearing makes rental housing scarcer. It shows that rents rose sharply in the two capitals that already had the tightest vacancy rates, that they did not in the capitals that did not, and that the two sides of that record have been argued in front of a Senate committee without either winning outright.

The 2024 landscape: same debate, different numbers

Fast forward nearly four decades. The argument sounds identical, but the numbers have changed dramatically.

Median dwelling prices and price-to-income ratios have both risen by a large multiple since 1985. We have removed the specific 1985 and current Sydney medians that used to sit here, because we could not trace them to a source we were willing to link. The ABS publishes the mean price of residential dwellings by state quarterly in Total Value of Dwellings, which is the series to check rather than a number quoted in a blog post — ours included. What is not in doubt is that the structural affordability problem is a much larger one than the tax question this article is about.

And negative gearing usage has shifted, in a way the latest ATO release makes precise. In the 2023-24 income year, 2,335,540 individuals had an interest in a rental property. 1,266,454 of them — 54.2 per cent — reported a net rent loss; 1,069,086 were neutral or in profit. The year before, in 2022-23, the split was 1,117,175 in loss against 1,143,905 neutral or in profit out of 2,261,080 — a slim majority in profit. The majority position flipped inside one year, which is what higher interest rates do to a leveraged asset 5.

On the distribution question — is it a tax break for the rich? — the honest answer is that headcount and dollar share point in different directions, and you should read the source rather than either side's summary of it. The ATO publishes the breakdown of rental property owners by taxable income range in Table 27B of Taxation Statistics, and the Grattan Institute's Housing Affordability: Re-imagining the Australian Dream analyses the distribution of the benefit 6. An earlier version of this article quoted a 60 per cent figure for investors under $80,000 of taxable income and a 50 to 60 per cent share for the top decile without a traceable citation for either. Both have been removed rather than re-attributed to a source we had not checked.

"The policy debate frames negative gearing as a gift to the wealthy," I've told clients. "The data shows it's actually a crutch for middle-income investors who bought the wrong property. The real question isn't whether to scrap it — it's whether we're helping people buy better properties that don't need it."

What abolition would actually look like in 2024

Let's game this out.

The scenarios below are other parties' published estimates of a restriction to new builds only, recorded here as evidence of what was argued, not as PremiumRea forecasts. We do not predict tax policy or its market effects, and nothing here should be read as a projection of what your property will do.

Short term (0-2 years): Investor demand for established properties drops. Auction clearance rates fall. Some price softening in investor-heavy suburbs, particularly apartments and lower-priced houses. First-home buyers benefit marginally from reduced competition.

Medium term (2-5 years): the two estimates put to the Senate inquiry point in opposite directions and we quote both. The REIA calculated that implementing the Henry Review recommendations "would add 2 per cent to the rental cost of a median three bedroom house". AHURI submitted the opposite conclusion — that long-run average annual rents would "fall by just over $300 per year", because while after-tax costs rise for negatively geared investors they fall for equity investors, so "a 'flight of investors' from private rental housing seems unlikely". Either way, new-build supply pipelines are 2-3 years long, so any redirection of investor capital into new stock is slow to arrive 7.

Long term (5-10 years): The market adjusts. Investors who rely on tax deductions exit. Value investors who buy for cash flow (our clients) are largely unaffected because their properties aren't negatively geared in the first place. The rental market eventually rebalances, but only after years of pain for tenants.

The politically uncomfortable framing is that reform trades current renters against future buyers — though as the Senate record above shows, whether that trade-off is real is exactly what is in dispute. What is not in dispute is that it is politically radioactive in a tight rental market.

This is exactly why every major party that campaigns on negative gearing reform either loses the election or quietly shelves the policy after winning. Labor took it to the 2016 and 2019 elections. Lost both times. The current government has been conspicuously silent on the topic since taking office.

What this means for your investment strategy

Here's my practical take, stripped of politics.

If you're currently negatively geared: You have policy risk. Not imminent risk — no government is going to abolish negative gearing before the next election — but structural risk over a 10-year horizon. The smartest move is to reduce your reliance on negative gearing by increasing your property's rental income. That might mean a renovation, a granny flat addition, or a rooming house conversion. For scale rather than promise: across the 345 settlements in our published open dataset (offer dates January 2023 to September 2025) the median gross yield after works was 5.77 per cent, and across the 48 of those that were rooming house conversions it was 6.94 per cent — annualised weekly rent divided by purchase price plus works, recorded outcomes for those properties and not a projection for yours 12.

If you're about to buy: Don't buy a property that only works because of negative gearing. If the investment case depends on the tax deduction, the investment case is weak. Buy for positive cash flow. If the government changes the rules, your property still works.

At PremiumRea, we model every client's purchase across three scenarios: current tax settings, restricted negative gearing (new builds only), and full abolition. If the property generates positive or neutral cash flow in all three scenarios, it passes. If it depends on negative gearing to survive, we walk away 10.

If you're a renter waiting for prices to drop: I'm sorry. But abolishing negative gearing won't make houses cheap. It didn't in 1985 and it won't now. The fundamental problem is supply. The National Housing Accord target agreed by Commonwealth, state and territory governments is 1.2 million new well-located homes over five years from 1 July 2024 — an average of 240,000 dwellings a year 9. Whether completions are running at, above or below that rate is a measurable question with a published answer: the ABS Building Activity release is the series to check, and we would rather point you at it than quote a build number we have not verified this quarter 10. Changing the tax treatment of existing investors does not, by itself, add a dwelling to either side of that ledger.

The data doesn't care about your politics. It tells the same story every time: buy land in areas with genuine demand, generate income that covers your costs, and hold through the policy cycles. Whatever the government does with negative gearing, that strategy survives.

August 2026 update: the scenario gamed out above is no longer hypothetical. The 2026-27 federal budget announced on 12 May 2026 restricted wage-income offsets for buyers of established residential property who sign contracts after that date, while grandfathering existing holdings and preserving full deductibility for new builds — close to the 'new builds only' reform argued over in this section 11. Our full breakdown of the announced package, cohort by cohort, is in the 2026 federal budget investor playbook. The strategic advice above does not change: if an investment case only works because of a tax deduction, it is a weak case — buy for cash flow first, the way our Melbourne buyers agent team builds every client model.