SYDNEY, June 28 — For families in mining towns and farming communities, the rent check has always told a story. Transient workers pay relatively higher rents compared with house prices than their city counterparts do, and that old dynamic is now at the center of a shifting investment landscape. Changes to negative gearing and capital gains taxes are making regional purchases a better option, according to experts.
REA Group economist Luc Redman said the policy shifts “provide a slightly more favourable opportunity for regional property relative to metro.” “That comes down to two key components of how regional property evolved prior to the pandemic: trends that are beginning to swing back towards normal levels,” Mr Redman said. Regional areas with established mining and farm workforces have long commanded higher rental yields for owners who borrowed to buy property.
Those higher yields are harder to come by in metro areas, Mr Redman said, and with the negative gearing changes, will likely attract more investors as their ability to deduct loan losses is lost. Here is the human side of the math. Because houses in the regions typically do not appreciate in value as quickly, slashing the capital gains tax discount also hurts metro owners by comparison.
An investor wanting to negatively gear in the future — which to start must be a new home — takes on more risk doing so on a property out in the regions. “The risk to investors pursuing this tactic in regional areas is that returns are contingent on future demand to live in that region, which would mean the area has a strong industry underpinning or lifestyle attractiveness,” Mr Redman said.
Not everyone agrees the tax changes tip the scales toward regional housing. Fresh Economic Thinking chief economist Cameron Murray said the tax changes did not favour regional housing over metro investments. Regional housing returned higher rent yields because owning a house in the country was riskier, and the tax changes would affect city and regional housing investments proportionately, according to Mr Murray.
For families in places like the mining towns of Western Australia or the farming communities of Queensland, what this means is that the rental market they have lived with for years — one where rents run high relative to purchase prices — is suddenly getting more attention from investors. The question is whether that attention brings new housing stock or simply more competition for existing homes. Behind the breakthrough in policy thinking is a recognition that regional Australia has its own economic logic.
The higher yields that have always existed in these areas were a compensation for risk — the risk that a mine closes, that a drought deepens, that the transient workforce moves on. The tax changes do not erase that risk, but they do change the calculation for investors comparing a city apartment against a country house.
What to watch next is whether regional areas with strong industry underpinning or lifestyle attractiveness see a genuine shift in investment patterns. The pandemic-era migration to the regions has already begun to swing back toward normal levels, Mr Redman noted. The tax changes may accelerate or redirect that trend, but the fundamental risk of betting on a region’s future demand remains.
