Rents are up, prices are down, and yields are at a seven-year high. Investors are leaving anyway.

Rents and home prices are moving in opposite directions. Cotality's national rental index rose 0.4 per cent in August and 5.7 per cent over the year, adding about $38 a week to the national median rent. Home values fell 0.9 per cent in the same month, the fifth monthly fall in a row, and now sit 3.6 per cent below the March peak. Put those together and the national gross rental yield has climbed to 3.79 per cent, the highest since September 2019. The national vacancy rate rose to 1.9 per cent, the highest since January 2025, though still well below the pre-COVID decade average of 3.3 per cent.

On paper, that is the first time in years that the maths on an investment property has moved in the buyer's favour. In practice, investors are walking out. ABS figures show the number of new investor loans fell 8.6 per cent in the June quarter to 52,599, the biggest fall since September 2022. CBA told the market in August that investor home loan applications were down 28 per cent since the 12 May Budget, against 9 per cent for owner-occupiers. The reasons are the negative gearing and capital gains tax changes that passed Parliament on 25 June and start on 1 July 2027, and three rate rises this year. The Reserve Bank decides again at 2:30pm tomorrow, with markets pricing roughly a 90 per cent chance of a fourth. We are not calling it, so the figures below use today's rates.

Why yields are rising, and where

Gross yield is a year's rent divided by the property's value, so it rises when rents go up or values go down. Right now both are happening, most of all in Sydney and Melbourne. Sydney values are down 4.6 per cent over the year and 7.1 per cent from their February peak, while Sydney house rents are up 5.3 per cent and unit rents 3.9 per cent. Melbourne values are down 4.7 per cent over the year, with house rents up 5.1 per cent and unit rents 4.9 per cent. Cotality's total return, which adds rent to the change in value, is negative in both over the year: minus 1.7 per cent in Sydney and minus 1.2 per cent in Melbourne, before a dollar of interest or costs.

Gross yields for dwellings in each capital city in August, according to Cotality:

• Darwin 6.3 per cent, with values still up 14.6 per cent on a year.
• Hobart 4.4 per cent.
• Canberra 4.3 per cent.
• Melbourne 4.0 per cent, and 5.1 per cent for units.
• Perth 3.9 per cent, with values still up 15.6 per cent on a year.
• Adelaide 3.6 per cent.
• Brisbane 3.4 per cent.
• Sydney 3.3 per cent overall: 2.9 per cent for houses and 4.4 per cent for units.

Gross yield is the brochure number. Here is the cash flow.

Take an established property bought for $900,000, close to Cotality's national median of $912,885, rented at $660 a week. That is a gross yield of 3.8 per cent, in line with the national figure. The investor borrows 80 per cent, or $720,000, interest only at 6.5 per cent. RBA figures show new interest-only investor loans funded in July averaged about 6.5 per cent, and new variable investor loans about 6.4 per cent.

Allow two weeks a year without a tenant and the rent collected is $33,000. Take off about $10,000 for property management, council and water rates, landlord insurance and repairs. That leaves $23,000 of net rent, a net yield of about 2.6 per cent, and excludes land tax and strata, which vary by state and building. Interest on $720,000 at 6.5 per cent is $46,800. The shortfall is $23,800 a year, or about $458 a week, before tax. On principal and interest over 30 years, the cash shortfall is about $31,600, although roughly $8,000 of that is principal you keep.

For this property to pay for itself on an interest-only loan at 6.5 per cent, the rent would need to be about $1,136 a week. That is a gross yield of roughly 6.6 per cent. Darwin is the only capital anywhere near it. As Cotality's Tim Lawless put it, "yields would need to rise substantially before rental income offsets holding costs".

Over the past year, a 5.7 per cent rise in rent adds about $1,850 to this property's income. This year's three rate rises total 0.75 percentage points, or $5,400 a year of extra interest on $720,000 if passed on in full. If the board raises the cash rate tomorrow and your lender passes on the full 0.25 points, add another $1,800. The yield has improved. The cash flow has got worse.

The tax change decides who pays that $23,800

This is general information, not tax advice. The changes are now law. According to the ATO, from 1 July 2027 negative gearing for residential property is limited to new builds, and the 50 per cent CGT discount for individuals, trusts and partnerships is replaced by cost base indexation and a 30 per cent minimum tax on capital gains. Who carries our $23,800 shortfall depends on when you bought:

• Bought before 7:30pm AEST on 12 May 2026: the property is exempt from the negative gearing change, and there is no cap on the number of grandfathered properties. At a 32 per cent marginal rate (30 per cent plus the Medicare levy), the $23,800 loss returns about $7,600 at tax time. The after-tax cost is about $16,200 a year, or $311 a week. At 39 per cent it is about $14,500, or $279 a week.
• An established property bought after that time: losses in the 2026-27 year can still be claimed against your wages. From the 2027-28 income year, the net loss is quarantined. It can only be used against income from residential property and residential capital gains, and anything left over carries forward. In our example you pay the full $23,800 yourself each year, about $146 a week more than a grandfathered owner on a 32 per cent rate.
• New builds: these keep negative gearing. For CGT, the owner can choose the 50 per cent discount instead of indexation. What counts as a "new residential dwelling" is set by the Minister in a legislative instrument, not in the Act itself, so check the specific property against that definition before you rely on it.
• CGT on property you already own: the new rules only apply to gains that build up after 1 July 2027. Gains made up to that date keep the 50 per cent discount. You can split the gain using the property's market value at 1 July 2027 or an apportionment method the Minister sets. That is more generous than some early readings of the Budget suggested.
• Deaths and separations: the Tax Reform No. 2 Act, which received assent on 26 August, closed a gap in the original law. From 2027-28, grandfathered or new-build status passes to a surviving spouse, to a co-owner who inherits a deceased co-owner's share (where both bought before the cut-off), and to a spouse who takes the property under a family law order or agreement after a relationship breakdown.

The banks moved before the law did. CBA's results presentation lists "updated negative gearing eligibility criteria for investor lending" in line with the Budget measures. It now charts borrowing capacity separately for investors buying new builds and established property. In plain terms, a tax refund that once helped an investment loan pass serviceability may count for less, or nothing, on an established purchase made after the Budget.

For renters: the bargaining power is in Sydney and Canberra

Cotality has Sydney's vacancy rate at 2.2 per cent, the highest of the mainland capitals, while Adelaide is still the tightest at 1.3 per cent. SQM Research, which counts rentals advertised for three weeks or more, has the national rate steady at 1.3 per cent in August. On its count, Sydney has 26 per cent more vacant rentals than a year ago and Canberra 29 per cent more. SQM found Sydney's combined asking rent fell 0.6 per cent in the month to $909.53 a week, with house rents down 1.2 per cent to $1,128.83. Canberra asking rents fell 1.6 per cent. National asking rents are still 7.3 per cent higher than a year ago but were flat over the 30 days to 4 September.

Renters elsewhere have much less room. On SQM's count, Brisbane, Perth, Adelaide and Darwin all have vacancy below 1 per cent and fewer vacant rentals than a year ago, and asking rents are up 7.7 per cent on a year in Brisbane, 7.1 per cent in Perth and 10.4 per cent in Hobart.

In Sydney, think about your landlord's side of the ledger. A property renting at the median Sydney yield, about $776 a week, loses $776 for every empty week, plus the cost of finding a new tenant. Trimming a proposed $40 a week increase to $20 costs the landlord $1,040 a year, less than two empty weeks. When the renewal notice arrives, bring evidence: comparable listings nearby, especially ones that have been advertised for three weeks or more. In most states rent can only rise once every 12 months, and you must get written notice first, which is 60 days in New South Wales.

Rent versus buy, at today's numbers

Take Sydney's median dwelling at $1,222,718. At the city's 3.3 per cent gross yield, it rents for about $40,350 a year, or $776 a week. To buy it with a 20 per cent deposit of $244,544, you would borrow $978,174. At 6.2 per cent, about the average rate on new owner-occupier variable loans in July according to the RBA, repayments over 30 years are about $5,991 a month. First-year interest is about $60,300. Add around $7,000 for rates, insurance and maintenance. Add about $12,200 of interest the deposit could have earned at 5 per cent. The costs you do not get back come to roughly $79,500 in the first year, against $40,350 in rent. These figures are illustrative.

The gap is about $39,200, or 3.2 per cent of the purchase price. On these assumptions, a Sydney owner needs values to rise by about 3.2 per cent a year just to match the renter, before stamp duty and other buying costs. Sydney values fell 4.6 per cent in the year to August. That does not make renting right for everyone: the owner pays off about $11,600 of principal in year one, has security of tenure and is buying while stock is up and competition is down. But the line that rent is dead money is weaker in Sydney than it has been for years.

What to do now

1. Investors: work from net yield, not gross. Subtract vacancy, management, rates, insurance, land tax and strata from the rent, then compare what is left with the interest bill. If it only works with a tax refund, check you will actually get one.
2. Check the purchase date of every property you hold against 7:30pm AEST on 12 May 2026, and keep the contract somewhere you can find it. If you are buying established property now, model the cash flow with no tax refund from 1 July 2027.
3. If a new build appeals because of the tax treatment, confirm it meets the new residential dwelling definition first. A tax concession does not fix a property that costs more than the market next door.
4. Do not base the decision on tomorrow's RBA result. Stress-test the cash flow at 0.50 percentage points above your current rate, and ask your accountant how the 1 July 2027 CGT split applies to properties you already own.
5. Renters in Sydney and Canberra: when the renewal notice arrives, collect comparable listings and make a counter-offer, or offer a longer lease at the current rent in exchange for certainty.
6. Renters thinking of buying: put your actual rent and the rate you would actually be offered into the rent vs buy calculator, then check your borrowing power at today's assessment rate before you make an offer.

Disclosure: Your Finance Guide works in conjunction with ALG Australian Lending Group (ACL 505575). Licensed brokers who meet our criteria pay Your Finance Guide a partnership fee to receive enquiries from this site. The fee is paid by the broker, not by you, and is not added to your loan. Brokers are usually also paid a commission by the lender when a loan settles. Several of the steps in this article, including negotiating your rent at renewal and running the rent vs buy numbers, pay a broker nothing. Rent, vacancy, yield and value figures are from Cotality's Home Value Index to 31 August 2026 and SQM Research's August 2026 release. Lending rates are RBA figures for July 2026. All figures are as at 28 September 2026, before the RBA's 29 September decision. Cash flow, tax and rent versus buy figures are illustrative calculations on the stated assumptions, not quotes. This is general information, not personal advice or tax advice. Speak to a registered tax agent about your own position.