Cheap Money Nearly Switched Off Negative Gearing. The Rate Rise Switched It Back On.

Negative gearing is usually argued about as if its size were a fixed number. Roughly 1.3 million landlords claim a rental loss each year; the losses run to billions; reform is debated as a change to a stable, permanent feature of the tax system. The tax treatment has not changed in a decade. So the concession is treated as a constant.

It is not a constant. Over the last five years the number of Australians negatively gearing a rental property fell by more than a quarter, and then climbed almost all the way back — with no change to the law. What moved was the interest rate.

The retreat#

In 2017–18, 1,324,123 people told the Australian Taxation Office their rental properties, taken together, ran at a loss. That was the high-water mark of two decades of steady growth. Then the count fell for four years running, to 949,519 in 2021–22 — 374,604 fewer landlords, a 28% drop, and the fewest reporting a rental loss since 2004–05.

Some of that could be a larger pool of landlords diluting the loss-makers. It is not. The total number of people declaring any rental interest rose in every one of those years, from about 2.21 million to 2.27 million. The share of landlords who were negatively geared is the cleaner measure, and it fell further and faster: from 60.0% in 2017–18 to 41.9% in 2021–22. For the first time in the ATO’s records — which begin in 1999–2000 — fewer than half of Australia’s landlords were losing money on rent.

The reason the retreat is invisible in most negative-gearing commentary is that it happened during the cheap-money years and reversed before the next set of tax figures was published. The 2021–22 trough coincides with the lowest cash rate in the Reserve Bank’s history: 0.10%, held from November 2020 to May 2022. When borrowing is nearly free, the biggest deduction a landlord claims — interest — nearly vanishes, and a property that would run at a loss at 5% runs at a profit at 0.1%.

The rebound#

Then the Reserve Bank raised the cash rate thirteen times, from 0.10% to 4.35% by November 2023. The retreat unwound almost as fast as it had happened. By 2023–24, 1,266,454 landlords were reporting a rental loss — a jump of 316,935, or 33%, in two years, and within 57,669 of the 2017–18 peak. The share negatively geared climbed back to 54.2%, a majority again.

The number of negatively geared landlords fell by more than a quarter, then climbed almost all the way back, in the space of six years. Parliament did not touch negative gearing once in that time.

What the losses cost is a separate figure, and it moved harder. The combined rental losses claimed by negative gearers shrank to $5.98 billion in 2021–22 — the smallest in the period the ATO reports the number — and then rose to $15.22 billion in 2023–24. That is 2.5 times the trough, and the largest annual figure in the six years the combined loss is published. The concession got cheaper for the budget when rates were low, and more than twice as expensive within two years, purely because rates went up.

The mechanism is interest#

Interest on loans is the largest single deduction a landlord claims, and it is the one that moves with the cash rate. The ATO reports it separately, and it traces the same shape. Aggregate rental interest deductions fell from about $23.9 billion in 2018–19 to $15.8 billion in 2021–22 as the cash rate collapsed, then doubled to $32.0 billion in 2023–24 as it climbed. That near-doubling of interest, on a loan book that grew only modestly, is what turned roughly 300,000 profitable landlords back into loss-makers.

The relationship is not a subtle statistical association that needs a coefficient to believe. Interest is a line on the tax return; the cash rate sets what that line costs; and the two series bend at the same points. The earlier years, from 2012–13 to 2018–19, are flatter than the rate alone would predict — landlords’ loan balances were growing, which pushed the interest bill up even as rates drifted down. The recent swing is too large for that to absorb: from the 2021–22 trough to 2023–24, the interest bill rose by more than $16 billion.

The two years the sector made money#

There is a genuine subtlety here, and it cuts against the simplest version of the story. Negative gearing shrank in the cheap-money years — but it never went to zero. Even at the 2021–22 low, 949,519 landlords were still negatively geared, still claiming $5.98 billion in losses. What briefly disappeared was not negative gearing; it was the sector’s net loss.

Combine every landlord’s losses and profits together, and Australia’s rental investors as a group reported a small net rental profit in 2020–21 and again in 2021–22 — about +$5.87 billion in the latter year — the first positive readings in the ATO’s per-individual series. Cheap money did not end negative gearing; it tipped the balance so that the landlords making money on rent briefly outweighed the ones losing it. By 2023–24 that had reversed too: the sector was back to a net rental loss of −$2.74 billion. The profit was a feature of the rate cycle, not a structural change, and it lasted exactly as long as the low rates did.

This is also where two of the ATO’s own tables have to be read carefully. A per-property measure and a per-individual measure of “net rental income” can disagree in sign in the same year, because a person who owns a losing flat and a profitable house nets them out. The figures here use the per-individual measure throughout; the point at which the two diverge is noted in the method.

Not one city’s story#

The rebound is not a Sydney artefact or a mining-town quirk. The number of loss-making rental schedules rose between 2021–22 and 2023–24 in every state and territory, from +9.7% in Western Australia to +78.5% in Tasmania, with the largest markets — New South Wales (+39%) and Victoria (+32%) — carrying most of the national increase. A single national interest-rate lever moved every local market the same way.

What could explain this instead#

The pattern is close to an accounting identity — interest is a deduction, the cash rate sets interest, and negative gearing is what is left when deductions exceed rent — but it is worth stating the alternatives.

A bigger landlord pool inflating the count. Total landlord numbers did rise across the period, which is exactly why the share negatively geared, not just the count, is reported here. That share fell to 41.9% and rebounded to 54.2%; the retreat and rebound survive the denominator.

Rents, not rates. Advertised rents rose sharply after 2021, which would push landlords towards profit and against the observed rebound in losses. That the loss count rose anyway, while rents were climbing, points to interest as the dominant force rather than a confounder working the other way.

A tax-rule change. From mid-2017 the government removed depreciation deductions on second-hand plant for new investors and disallowed residential travel deductions. Those reduce claimed losses, and they bit across this whole window in one direction — so they work against the rebound, not for it. No negative-gearing rule changed between 2021–22 and 2023–24, the two years the count swung most.

Composition of who invests. The mix of investors shifts year to year. But a change in who owns rentals would not produce a turn this sharp, this synchronised with the cash rate, in every state at once. The simplest account that fits all of it is the price of money.

None of this establishes that lower rates cause landlords to negatively gear in a behavioural sense — the deduction rises mechanically with the interest bill whatever the investor does. The claim is narrower and firmer: the measured size of negative gearing — how many landlords report a loss, and how large those losses are — is governed by the interest-rate cycle, and moved by tens of billions of dollars and hundreds of thousands of people within a few years, with no change in tax policy.

The debate over negative gearing is usually framed as a fixed cost waiting for a political decision. The tax figures describe something more restless: a concession whose size the Reserve Bank resets every rate cycle, quietly, without a vote — shrinking it to a minority of landlords when money was cheap, and reflating it to a near-record within two years when money was not.