For a decade, Sydney and Melbourne have told the same investment story, land wins.

Sydney house values have surged roughly 113% over ten years, with growth corridors like the south-west leading the pack. Melbourne houses aren’t far behind, up around 96% over the same period. Apartments, by contrast, have lagged badly. Sydney units have grown at just 3.7% a year over two decades, a rate you’d expect from a small regional town, not Australia’s largest city. Melbourne apartments have “floundered” so consistently that many established units now trade below replacement cost.

The drivers are structural, not cyclical: chronic high-rise oversupply from the 2015–2019 construction boom, and a stubborn owner-occupier preference for detached houses over “concrete cupboards in the sky.” Investors chasing capital growth have, historically, been better served by land content than by floor space.

Now add a policy shift that could reshape the calculus further. From 1 July 2027, negative gearing will no longer be available for established residential properties acquired after Budget night (12 May 2026), unless they’re new builds. Investors buying an existing apartment or house after that date will only be able to offset rental losses against other rental income or future capital gains, not salary or business income.

For established apartments, the segment that has already underperformed for a decade, this removes one of the few offsetting benefits that made holding a low-growth, negatively geared asset palatable. Without the tax shield, the investment case for established units increasingly rests on yield alone, while new-build apartments retain
full negative gearing access and may become relatively more attractive to tax-conscious investors.

The takeaway for portfolio strategy: the historical growth gap between houses and apartments was already wide. This reform doesn’t close it, it may well widen the divide between new and established stock within the apartment market itself. Apartment investors may be hoping for a change in the long-term trend of underperformance. The loss of negative gearing to new investments in established housing stock will inevitably soften investor demand for established property and apartments.