How Landlords Shape Rental Affordability in Australia

Why Landlord Behaviour Matters

If you've ever rented, 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?

If you're building, this matters too. Maybe you're renting while your new home goes up, or you're building an investment property. Either way, landlord decisions shape the rent you pay and the returns you'll get.

These things aren't random. They often come down to how landlords make decisions and the incentives they respond to.

AHURI (the Australian Housing and Urban Research Institute) looked at exactly this in its April 2025 Final Report No. 440, Modelling landlord behaviour and its impact on rental affordability: insights across two decades. It uses 20 years of HILDA Survey data (2001 to 2021) to understand why small-scale landlords buy, hold or sell, and what that means for renters.

This isn't about pointing fingers. Some landlords are in it for the long haul and happy with steady rent. Others are chasing capital growth and sell within a few years.

What the report makes clear is that landlord decisions, whether driven by tax, interest rates or personal circumstances, ripple through the rental market. They affect how many rentals are available and how long tenants can stay.

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.

What Shapes Landlord Decisions?

What actually goes through a landlord's head when deciding to buy, hold or sell? It's mostly money, and it isn't always about keeping a steady tenant.

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: For many investors, rent mostly covers costs while they wait for the property to grow in value. But yield matters: the report found that each percentage point of extra rental yield lowers the odds of selling by about 8%.
Tax settings: Negative gearing and the 50% capital gains tax discount (for property held more than 12 months) reward capital growth more than rental yield.
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.

Landlords aren't all wired the same. Some run their portfolio like a business. Others own one investment property and treat it more casually.

Timing matters too. When lots of landlords sell during a downturn, rental stock drops just when supply is already tight.

How Investor Types Differ (and Why It Matters)

Not all landlords play the same game, and that matters for rental affordability and stability.

The AHURI report splits landlords into two broad groups:

Short-term investors: Hold for a few years or less. They tend to be younger (often 25 to 34) and are more likely to sell because of financial strain or a change in their lives.
Long-term investors: Hold for years, often decades. They tend to be older, wealthier, in full-time work and on higher incomes, and ride out the ups and downs.

Why does the split matter? Short-term investors are more likely to sell when rates climb or prices wobble. Those homes often leave the rental pool, bought by owner-occupiers or sitting empty during the sale.

Long-term investors keep rental supply steadier because they aren't rushing to sell at the first sign of trouble.

The catch: the tax settings reward capital growth over rental yield, which encourages investors to sell when growth stalls. That means churn, with landlords moving in and out of the market, rather than stability.

Churn isn't cheap. Renters face more moves and less security, and governments have to scramble to keep up.

How Government Policy Influences Landlord Behaviour

To understand why landlords act the way they do, look at the rules as well as the market.

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.

Together these incentives favour holding for capital growth, whether or not the property is rented affordably or well maintained.

When conditions change, such as interest rates rising, landlords can exit quickly. That pulls properties from the rental market and adds to supply crunches.

The report's message isn't that these policies should go. It's that they shape landlord behaviour, and any changes should be made gradually so they don't destabilise the market.

How AHURI Did the Research

The researchers tracked real landlords and non-landlords in the HILDA Survey (Household, Income and Labour Dynamics in Australia) from 2001 to 2021. They modelled decisions to buy, hold and sell, then ran simulations to test how policy changes would affect landlords' costs and tenants' rents.

What the Simulations Showed

The researchers tested three changes. These aren't predictions, but they show how landlords and renters respond.

👉️ Halving the CGT discount

This would hit high-income landlords harder than low-income ones, but have little impact on rental affordability.

👉️ High interest rates

High rates hurt low-income landlords and low-income renters more than high-income landlords, and push rents up.

👉️ Stage 3 tax cuts

The income tax cuts would have little effect on whether landlords keep their rental properties.

The big takeaway? Policy changes don't land evenly. Who gets hurt depends on income, and renters on low incomes are the most exposed.

What This Means for Renters

Here's what the findings add up to:

Many rentals change hands quickly. About half of rental properties are sold within two years, while nearly a third of landlords hold for more than 20 years.

Churn hurts renters. Each sale can mean a tenant moving out, and if an owner-occupier buys, one less rental.

Yield keeps landlords in. Better rental returns lower the odds of a landlord selling.

Rates hit the bottom hardest. High interest rates squeeze low-income landlords and renters most.

Supply alone isn't enough. In our view, who owns homes and how long they hold them matters as much as how many get built.

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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 what's worth changing?

The AHURI report's recommendations are practical rather than radical. None are silver bullets, but together they could move the needle.

1. Reform tax settings gradually

Negative gearing and the CGT discount have shaped landlord behaviour for decades. Any reform should be phased in, because sudden change could destabilise the rental market.

2. Educate prospective landlords

Financial education for would-be landlords, especially those without post-school qualifications, could help more of them hold their investments long term instead of being forced to sell.

3. Tighter lender risk checks

Lenders doing rigorous financial risk assessments would stop over-leveraged purchases that end in an early sale.

The report calls for greater government and institutional investment in social and affordable housing, so renters on low incomes aren't left relying on a churning private market.

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.

Frequently Asked Questions (FAQs)

1. What is the AHURI report about?

AHURI Final Report No. 440 (April 2025) uses 20 years of HILDA data to look at how small-scale Australian landlords decide to buy, hold or sell investment properties, and how those decisions affect renters. Read it here: Modelling landlord behaviour and its impact on rental affordability: insights across two decades.

2. What's negative gearing, and why does it matter here?

Negative gearing lets landlords offset rental losses, such as interest and maintenance costs, against their other income. It's a major incentive for property investment in Australia and encourages buying for capital growth rather than rental income.

3. Would changing the tax rules fix affordability?

Not on its own. The report's modelling found halving the CGT discount would have little impact on rental affordability. It recommends any tax reform be phased in gradually.

4. Can building more homes solve the rental crisis?

It helps, but it isn't the full answer. If new homes aren't available to rent, or are priced out of reach, renters don't benefit. Who owns the homes and how long they hold them matters too.

5. I'm building an investment property. What should I take from this?

Buy with a long hold in mind, stress-test your loan against higher interest rates, and focus on rental yield as well as growth. Landlords who can afford to hold are less likely to be forced into selling at the wrong time.

Landlords & Rental Affordability: What’s Driving the Crisis?

Why Landlord Behaviour Matters

What Shapes Landlord Decisions?

How Investor Types Differ (and Why It Matters)

How Government Policy Influences Landlord Behaviour

How AHURI Did the Research