Does negative gearing still stack up? | New Times

For decades, negative gearing has been one of the great wealth engines in Australia. The strategy was simple: buy a property, rent it out, run it at a loss, and claim that loss against your salary income at tax time. The shortfall could be carried so long as you earned enough to cover the gap, because the long-term bet was that capital growth would make you far wealthier than you started.

For Baby Boomers, the timing was perfect. Property was far cheaper relative to wages, and while interest rates could spike, loans were modest enough that repayments remained manageable. An investor in the 1980s or 90s could pick up a suburban house for $100,000–$150,000. Rent might cover most of the mortgage, and the tax offset softened the blow of any shortfall. Two decades later, that same house could be worth three or four times as much. Those who repeated the formula — buying multiple properties, leveraging their salaries, and leaning on the tax rules — found themselves with portfolios that grew quietly into fortunes.

Fast-forward to today and the picture looks starkly different. The median house price in capital cities now hovers around $1.2 million, with deposits often exceeding what entire houses once cost. On an $800,000 investment property bought with a standard loan, annual interest alone can run close to $45,000, before adding rates, insurance, and maintenance. Rents have climbed but rarely enough to bridge the gap: typical rental income might be $30,000, leaving an investor more than $20,000 out of pocket each year. Even after tax offsets, the cash drain remains substantial.

The long-term gains are still alluring. If that $800,000 property doubles over 20 years – not an unreasonable scenario – the paper profit could exceed half a million dollars, even after accounting for years of losses. But the risks are sharper, the sums larger, and the patience required greater. What was once an accessible strategy for a middle-class professional now demands higher incomes, and larger savings buffers.

The contrast can be seen clearly in the numbers:

The figures show why negative gearing remains popular. Even in today’s market, long-term gains can be substantial – but the entry price has escalated. Bigger deposits, heftier loans, and possibly steeper short-term losses are now on the cards for those pursuing this strategy.

That doesn’t mean negative gearing no longer works. For those determined to follow the path blazed by Baby Boomers, the trick lies in what kind of property you buy. Investors need to target locations with the strongest prospects of long-term capital growth: suburbs benefiting from infrastructure upgrades, population inflows, or gentrification. Properties that appeal to tenants and generate steady rents help cushion the cash flow losses, but the bet is still on capital appreciation.

Negative gearing made many property investors rich because conditions allowed it. It can still work today – but only for those with the income, the borrowing power, and the patience to carry larger losses while waiting for growth. The strategy hasn’t disappeared; it has simply grown more expensive. For investors willing to pay that entry price, the rewards can still be handsome.