🦹‍♀️ How Landlords Shape Rental Affordability in Australia

Introduction: Why Landlord Behaviour Deserves Attention

If you’ve ever rented—or even tried to—you’ve probably asked yourself: why are rents so high? Why’s it so hard to find a decent place? And why does the lease always seem to end just before the landlord decides to sell?

Turns out, these things aren’t random. They often come down to landlord behaviour—how they’re making decisions, what incentives they’re chasing, and how the rules of the game shape their moves.

A recent report from AHURI (that’s the Australian Housing and Urban Research Institute) digs right into this. It’s called “Modelling landlord behaviour and its impact on rental affordability,” and it’s based on 20 years of data and simulation modelling. The goal? To understand why landlords buy, hold, or sell—and what that means for the rest of us trying to find or keep a place to live.

This isn’t a finger-pointing exercise. Not all landlords are the same. Some are in it for the long haul, happy with stable rental income. Others are playing the capital gains game—buying low, selling high, and moving on. Some own one investment property. Others? They’ve got entire portfolios.

What the AHURI report makes crystal clear is this: landlord decisions—whether they’re tax-driven, rate-driven, or just trying to exit at the right time—ripple through the whole housing market. These decisions shape how many rentals are available, how stable prices are, and how hard it is for everyday Aussies to find a home they can actually stay in.

In this post, we break down the findings in language you can understand. Whether you’re a homeowner, a renter, or just someone trying to wrap your head around how housing policy and investment affect affordability—this post is for you.

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Landlords don’t run the whole show—but when thousands make the same call, it adds up. If we want to understand the housing market, we’ve got to understand what drives their decisions.

What Shapes Landlord Decisions?

Ever wonder what actually goes through a landlord’s head when they decide to buy, hold, or sell a property? According to the AHURI report, it’s not just about how nice the place looks or how much rent it brings in. Most landlords are weighing up a mix of financial factors—and those decisions aren’t always about keeping a steady tenant.

Here’s what tends to shape their thinking:

Capital gains: If property prices are on the rise, landlords are more likely to hang on or jump in. But if the market flattens—or worse, dips—they start eyeing the exit.
Rental income: You’d think this would be the main reason to hold a rental, right? But for many investors, especially those playing the long game, rent just helps cover costs while they wait for the property to grow in value.
Tax perks: This one’s big. Negative gearing and capital gains tax discounts make it more attractive to hold a property—even if the rent’s not great and the costs are piling up.
Costs and interest rates: When maintenance bills climb or interest rates rise, some landlords decide it's not worth the hassle anymore and put the place on the market.
Regulation and risk: If renting out property starts to feel too risky or too tightly regulated, landlords—especially newer or smaller ones—might decide it’s easier to cash out.

One thing the AHURI researchers point out is that landlords aren’t all wired the same. Some are highly structured, running their portfolio like a business. Others just own one investment property and treat it more casually. Some plan to hold for decades. Others flip within a few years depending on market vibes.

And timing? It matters. When a bunch of landlords choose to sell during a downturn, it doesn’t just affect their finances—it takes rental stock off the market. That leaves renters scrambling just when supply is already tight.

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Landlords respond to money, risk, and rules. Knowing what drives their decisions helps explain why rentals disappear—or reappear—when they do.

How Investor Types Differ (and Why It Matters)

Not all landlords play the same game—and that's important to understand, especially when we’re talking about rental affordability and stability.

The AHURI report breaks landlords into two broad types, based on how they behave:

Short-term investors: These folks are chasing capital gains. They tend to buy when the market’s hot and sell the moment things cool off. Their decisions rise and fall with the market—and they usually aren’t in it for the long haul.
Long-term investors: These landlords stick it out. They hold their properties through the ups and downs, aiming for slow and steady returns. Think: retirement planning, wealth building, or just a reliable income stream over time.

So, why does this split matter?

Because short-term investors are more likely to cut and run. When interest rates climb or prices wobble, they sell. And when they do, those properties often leave the rental pool—snapped up by owner-occupiers or left vacant during the sale process. That means fewer rentals available right when demand is rising.

Long-term investors, on the other hand, bring a bit more calm to the chaos. They’re not rushing to offload properties at the first sign of trouble, which helps keep rental supply more consistent.

But here’s the kicker: Australia’s tax system often rewards the short-term approach. Negative gearing and capital gains tax discounts make it more tempting to sell at the “right” time than to hold on. That encourages churn—landlords in and out of the market—rather than stability.

And churn isn’t cheap. It drives up rents, makes it harder for renters to find secure housing, and forces governments to scramble just to keep up. Even landlords pay for it—often re-entering the market later at higher prices.

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Some landlords flip and flee. Others stay the course. But when policy rewards the quick exit, renters and the rental market wear the cost.

How Government Policy Influence Landlord Behaviour

If you want to understand why landlords act the way they do, don’t just look at the market—look at the rules.

Australia’s tax system plays a big role in shaping landlord decisions. The AHURI report makes it clear: policy doesn’t just set the backdrop—it sets the tone.

Here are a few of the biggest policy levers:

Negative gearing: This allows landlords to offset property losses (like interest or maintenance costs) against their taxable income. It’s been a go-to strategy for years, especially for investors focused on long-term capital growth rather than strong rental returns.
Capital Gains Tax (CGT) discount: If a landlord sells an investment property after holding it for more than a year, they can discount the taxable portion of their gain by 50%. That’s a pretty big incentive to sell once prices rise.
Interest deductibility: Landlords can deduct the interest they pay on loans for investment properties. This makes borrowing more attractive and encourages highly leveraged investment—especially when rates are low.

These incentives combine to encourage a “buy and hold” (or even “buy, hold, flip”) strategy—whether or not the property is being rented affordably, maintained properly, or even tenanted at all.

And when things change—say, interest rates climb or the tax perks lose their shine—landlords can exit quickly. That’s when we see properties pulled from the rental market, contributing to supply crunches and rent hikes.

The AHURI report doesn’t argue for or against these policies directly—but it does show how they shape landlord behaviour in ways that impact everyone else. If the goal is a more stable, affordable rental market, the incentives need to match.

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Tax breaks steer landlord behaviour. If we reward flipping and holding empty homes, we shouldn’t be surprised when renters lose out.

The Modelling Approach: How the AHURI Team Simulated Behaviour

Okay, so how did the researchers actually figure all this out? They didn’t just sit around guessing what landlords might do—they built a model to simulate it.

It’s called a microsimulation model, and here’s how it works in plain terms:

Imagine thousands of digital landlords, each with their own goals, financial situation, property type, and risk appetite. These virtual landlords were programmed to behave like real ones—making choices about buying, holding, or selling based on things like tax settings, interest rates, and market conditions.

The researchers fed the model real-world data from the ABS, the HILDA survey, and housing market trends to make sure the behaviours it produced matched what’s actually happening on the ground.

The beauty of this setup is that it lets researchers ask big “what if” questions—like:

What if negative gearing disappeared?
What if interest rates shot up?
What if more properties were owned by big institutional landlords instead of individuals?

Then, they could watch how the model responded.

It’s worth noting that this wasn’t some one-size-fits-all approach. The model accounted for different types of landlords—some risk-averse, some aggressive, some in it for the long game, others just testing the waters. That gave the researchers a much more realistic picture of how the rental market reacts to change.

Bottom line? This wasn’t guesswork. It was a well-calibrated simulation grounded in real Australian data, designed to explore how landlord choices play out across the housing system.

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This wasn’t theory—it was simulation backed by real data. When the rules change, landlord behaviour shifts. The model shows us how.

Simulation Scenarios: What If Landlords Behaved Differently?

Once the AHURI team had their landlord behaviour model up and running, they started tweaking the dials. What would happen if we changed the rules? What if landlords faced different conditions?

These simulations didn’t predict the future—but they did show how sensitive the rental market is to changes in policy, pricing, and investment behaviour.

Here are a few of the key “what if” scenarios they tested:

👉️ No more negative gearing or CGT discounts

Removing these tax perks changed the playing field. Fewer investors entered the market, and some existing landlords decided to sell. That meant a drop in rental stock—but also less speculation and fewer short-term flips.

👉️ Interest rates rise

When rates go up, borrowing becomes more expensive. The model showed that many landlords—especially those carrying a lot of debt—would think twice about staying in. Some sell, reducing rental supply right when it’s already tight.

👉️ Institutional landlords take over

Instead of relying on “mum and dad” investors, what if more properties were owned by big players—like super funds or property trusts? The model showed that institutional landlords were more stable, less reactive, and more likely to hold onto properties long-term. That’s good news for renters.

👉️ Flatlining property values

When the market stops climbing, the appeal fades—especially for short-term investors. The model found many landlords would either hold off buying or exit altogether, leading to fewer rentals in the pipeline.

The big takeaway? Landlords respond quickly to changes in the environment. Shift the tax rules, raise the rates, change who’s allowed to own what—and landlord behaviour adjusts fast. That ripple effect spreads across the entire rental system.

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Tweak the rules and landlords react—fast. These simulations show how even small policy changes can shake up the whole rental market.

Key Insights from 20 Years of Data

Looking at landlord behaviour over two decades gives you a pretty good sense of the patterns—and the pain points. The AHURI report doesn’t just focus on what landlords say they’ll do. It looks at what they actually do, year after year, across changing markets and policy settings.

Here’s what stood out:

Lots of landlords don’t stick around

There’s a high churn rate among property investors. Many enter the market, hold a property for a few years, then sell and move on. That constant turnover creates instability for renters and means the supply of rental homes is always shifting.

Bigger landlords play the long game

People with multiple properties tend to behave differently. They’re less fazed by interest rate hikes or short-term market wobbles. With more equity and better cash flow, they can afford to wait things out—and usually do.

Tax perks drive holding decisions

The data shows landlords often hang onto properties not because the rent is good or the demand is strong, but because the tax system rewards them for doing so. That means we’re not always getting rental supply where or when it’s actually needed.

Rental ownership is fragmented

Most of Australia’s rental stock is owned by individuals with just one investment property. This makes the market fragile—if lots of small investors decide to sell at once, rental supply takes a big hit.

Policy shifts have long shadows

Incentives introduced years ago—like the CGT discount or broader negative gearing rules—are still shaping the way landlords behave today. These choices echo for years, which is why undoing or tweaking policies takes time to filter through the system.

So while it’s tempting to blame the market or assume renters just need to “ride it out,” this report shows it’s more complicated. Landlord decisions don’t happen in a vacuum—they’re shaped by decades of policy and a system designed around capital gains more than stable housing.

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Twenty years of data, same story—churn, tax-driven decisions, and fragmented ownership keep the rental market on shaky ground.

What This Means for Rental Affordability

So, what’s the fallout from all this landlord behaviour? In short: it’s renters who cop the consequences.

The AHURI report makes it painfully clear that landlord decisions—driven by tax perks, market conditions, and personal timing—are a key piece of the rental affordability puzzle. Here's how it plays out:

Short-term investors mean short-term stability

When landlords are just in it for the gains, they’re more likely to exit the moment the numbers don’t stack up. That removes rental stock from the market, often with very little warning. One investor sells, another moves in as an owner-occupier, and just like that—one fewer home to rent.

Churn squeezes supply

When thousands of landlords make that same call at the same time—say, when interest rates rise or tax rules shift—it can create a shock to the system. Less stock means more competition, and that drives prices up.

Renters carry the cost

It’s not just about finding a home—it’s about staying in one. Landlord turnover creates a lot of uncertainty. Renters face higher costs, more frequent moves, and less bargaining power when supply gets tight.

More homes ≠ better affordability

Even when we build more housing, affordability doesn’t magically improve—especially if those homes aren’t being rented, or are priced out of reach. What matters is who owns those homes and how they use them.

Policy settings have unintended effects

When tax perks encourage people to hold empty properties, or flip for a quick gain, affordability suffers. It’s not always about bad landlords—it’s about bad incentives.

Bottom line? If we’re serious about fixing rental affordability, we need to stop pretending it’s just about supply. It’s about structure, ownership, and the behaviours baked into the system.

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It’s not just about building more homes—it’s about who owns them, how they’re used, and whether the system puts renters first.

Policy Recommendations: What Can Be Done

So, where do we go from here? If landlord behaviour is helping drive rental instability and unaffordability, what’s actually worth changing?

The AHURI report doesn’t deliver a laundry list of fixes—but it does offer solid ideas for shifting the system in a better direction. None of these are silver bullets, but together they could move the needle.

🥷 1. Rethink negative gearing and CGT discounts

These tax breaks have shaped landlord behaviour for decades. Reforming them—either by capping, phasing out, or tying them to genuine rental supply—could reduce speculative investment and favour landlords in it for the long haul.

The trick? Do it gradually. Sudden change could backfire. But long-term reform could reshape the market to better serve renters—not just investors.

🥷 2. Reward long-term rental commitments

Instead of giving blanket incentives, offer targeted benefits for landlords who rent long-term, maintain properties properly, and provide real stability. Think tax breaks for multi-year leases or deductions tied to affordable rent levels.

This encourages behaviour that actually supports housing outcomes—not just balance sheets.

🥷 3. Support institutional landlords

Big players like super funds or not-for-profits can offer professional management, long-term stability, and a buffer against market shocks. The modelling shows they’re less reactive—and more consistent—than individual investors.

Governments could make it easier for these groups to enter the market through planning approvals, land access, or tailored tax settings.

🥷 4. Track what landlords are doing

Right now, we don’t have great visibility into landlord activity. Who owns what? How long do they hold it? What makes them sell? Building better data tools would help policymakers react faster—and smarter—when things change.

🥷 5. Design policy for outcomes, not headlines

Quick-fix tax changes or flashy grants can sound good—but they often miss the bigger picture. Policies need to be tested, modelled (like AHURI did), and built around long-term housing outcomes. Otherwise, we’re just playing whack-a-mole with affordability.

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If we want better housing outcomes, we need smarter incentives. Reward the behaviour we actually want—not just what’s easy to tax.

Final Thoughts: Putting the Pieces Together

After digging through two decades of data and landlord modelling, one thing’s clear: landlords matter. Not just individually, but as a collective force shaping Australia’s rental market—for better or worse.

The AHURI report doesn’t point fingers or cast blame. It simply shows that landlord behaviour isn’t random. It’s shaped by tax settings, market signals, interest rates, and policy decisions. If you change the environment, you change the behaviour.

Right now, the environment rewards short-term thinking. It encourages landlords to jump in for the tax perks and jump out when things get tricky. That kind of churn might make sense financially—but it doesn’t make for a stable, affordable rental market.

This isn’t just a renter issue. When the system becomes volatile, it’s harder for governments to plan, harder for homeowners to upsize or downsize, and harder for investors to make smart, long-term decisions.

We need to stop thinking of housing as just a wealth-building tool and start treating it like the essential service it is. That means designing policies that promote security, predictability, and access—not just capital growth.

The good news? Behaviour can change. But only if the incentives do.

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Landlord behaviour follows the rules we set. If we want a better system, we need to change the game—not just blame the players.

Frequently Asked Questions (FAQs)

1. What is this AHURI Report all about?

It explores how Australian landlords make decisions about buying, holding, or selling investment properties—and how those decisions affect rental affordability, supply, and market stability over a 20-year period.

2. Why does landlord behaviour matter to renters?

Because landlords decide whether a home is available to rent, for how long, and at what cost. If lots of landlords sell or exit the market at the same time, it reduces rental supply and pushes prices up.

3. What’s negative gearing, and why is it important here?

Negative gearing lets landlords offset rental losses against their income tax. It’s a major incentive for property investment in Australia and can encourage people to buy and hold rental properties—even when they aren’t profitable.

4. What’s the difference between short-term and long-term landlords?

Short-term landlords invest for quick capital gains and often sell quickly. Long-term landlords usually hold properties for years and rely more on steady rental income. Long-term landlords create more stable rental supply.

5. How does tax policy shape the rental market?

It nudges landlords toward certain behaviours. For example, capital gains tax discounts can encourage flipping properties, while negative gearing makes it more appealing to hold loss-making rentals purely for tax benefits.

6. Would removing negative gearing fix affordability?

Not necessarily on its own—but it could reduce speculative investment and shift the market toward more stable, long-term rentals. The report suggests that reforms should be carefully modelled to avoid unintended side effects.

7. What are institutional landlords?

These are large organisations—like superannuation funds or property trusts—that manage many rental properties. They tend to behave more predictably and hold properties longer than individual investors.

8. Are institutional landlords better for renters?

In the simulations, yes. They provided more stable rental supply and weren’t as reactive to market shocks like interest rate hikes or policy changes.

9. Can building more homes solve the rental crisis?

It helps—but isn’t the full answer. If those homes aren’t available to rent, or are priced too high, affordability still suffers. Who owns the homes and how they’re managed also matters.

10. What should policymakers take away from this report?

That housing policy isn’t just about how much stock is out there. It’s also about designing incentives that shape landlord behaviour in ways that support long-term, affordable, and stable rental housing.

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