Ask an Australian in their fifties how they ended up running their own business and a pattern shows up in the answers. "I'd saved about a year of living expenses, the mortgage was manageable on one income, my partner went back to work part-time, and I took the leap." Ask the same question of someone in their twenties and you usually get a quiet laugh. Take a leap on what? The runway isn't there.
It is easy to read that as a story about risk appetite ā that younger Australians are softer, less hungry, less entrepreneurial than their parents. That is not what the data shows. What the data shows is simpler and more structural. The cost of keeping a roof over your head has roughly tripled relative to income over three decades, and when the bank takes half your paycheque before you buy groceries, there is nothing left to bet on yourself with.
This post is about that squeeze ā about how Australia's housing obsession has quietly starved the country of its most important kind of risk capital: ordinary households with enough slack in the monthly budget to try something new. The tax system plays a role in how we got here, and I'll get to that. But the load-bearing story is about household cash flow, not tax deductions.
What risk capital actually looks like for a household
Almost no small business in Australia is funded by venture capital. The overwhelming majority are funded the same way they have always been: a founder who stops earning a salary for six to twelve months, lives off savings, borrows a little from family, and hopes revenue shows up before the buffer runs out. That is what "risk capital" means at the kitchen-table level ā it is not a term sheet, it is a year of groceries paid for from savings while nothing is coming in.
That runway has two prerequisites. First, enough slack in monthly cash flow that savings are possible in the first place. Second, fixed commitments low enough that going without a salary for a year is actually survivable. Both of those prerequisites have been quietly dismantled over the last three decades by one variable: the price of a house.
A fair objection at this point is that starting a business has never been easier or cheaper than it is today. Shopify, Stripe, AWS, Canva, ChatGPT ā the tool stack a solo founder can assemble in a weekend for a few hundred dollars a month would have cost a quarter of a million dollars and a bookkeeper in 1995. That is true. But it turns out the bottleneck was never the tools. The bottleneck is the runway, and the runway has collapsed.
The 1995 vs 2025 numbers
Here is what has actually happened to the Australian household balance sheet since the mid-1990s.
| Measure | Mid-1990s | 2024ā2025 |
|---|---|---|
| National house price : median income | ~3.0x | 9.7x |
| Sydney house price : median income | ~4.0x | 13.8x |
| % of median household income to service a new mortgage | ~25ā30% | 50.6% |
| Sydney ā % of household income to service new mortgage | ā | 62.1% |
| Self-employment rate (share of workers) | 19.1% (1991) | 15.7% (2022) |
Sources: price-to-income ratios from Demographia's International Housing Affordability Survey, which ranks Sydney 94th out of 95 markets globally. Mortgage servicing figures from the ANZ-CoreLogic Housing Affordability Report, November 2024. Self-employment data from the Centre for Independent Studies' Risky Business: Why Millennials Are Scared Off Entrepreneurship.
Read those rows together. In the mid-1990s a single median earner bought a house at roughly three times their annual income and paid a quarter to a third of their take-home pay on the mortgage. In 2025, a new buyer pays over half their household income ā and they need two incomes to qualify for the loan in the first place. Sydney buyers pay closer to two thirds of their household income just to hold the keys.
That is not a marginal change. That is a different economy.
The missing entrepreneurs
If the runway theory is right, we should be able to see entrepreneurship declining in the data over exactly the same period. We can.
Start with the headline number, because it looks reassuring and it is misleading. The Australian Bureau of Statistics counted roughly 2.73 million actively trading businesses at June 2025, up 2.5% year on year, with 437,150 entries and 370,500 exits (ABS Counts of Australian Businesses, Catalogue 8165.0). On the face of it, business formation is growing.
Open the lid and the picture inverts. The Committee for Economic Development of Australia (CEDA) analysed the same ABS series and found that entry rates for employing businesses declined steadily through the 2000s and have been essentially flat since. Every dollar of headline growth in the business count is coming from non-employing ABNs ā sole traders and gig contractors (CEDA: "Fewer Australians are starting a business, and those who do aren't hiring"). That includes every Uber Eats rider and DoorDash courier in the country, who are classified as independent contractors and required to register an ABN to work.
Strip out the gig economy and the number of genuine new Australian businesses ā the kind that hire people, take on a lease, and build something ā has been essentially flat for twenty years while the population and the workforce have grown.
Three further data points sharpen it:
- Self-employment is falling. The share of Australian workers who are self-employed dropped from 19.1% in 1991 to 15.7% in 2022 ā a 17.8% relative decline over three decades (CIS, Risky Business).
- Young founders are disappearing. Australians under 30 now make up roughly 8% of small business owners; the historical share was closer to 16%. The modal age of an Australian small business owner has climbed from 45 in 2006 to 50 in 2024, and over-50s now make up 47% of all owners (CPA Australia data, via SmartCompany).
- The entrepreneurs we still have are mostly people who already own homes. The demographic bulge of business owners sits in the 50ā65 cohort ā the cohort that bought into the property market before prices decoupled from wages and is now using home equity as implicit startup capital.
The pattern is consistent. The Australians most likely to have the cash-flow slack and the asset buffer to start a business are people who got on the property ladder before the ladder tripled in price. Everybody else is locked out.
Why prices got this high
The household squeeze did not happen by accident. Australia's tax system has, for over twenty years, actively rewarded channelling capital into residential property ā and Australian banks have amplified the signal. This is the material that explains how the house-price side of the equation drifted so far from the wage side. It is worth understanding because the May 2026 budget is the first serious attempt in a generation to reconsider parts of it.
Negative gearing allows investors to deduct losses on an investment property against their other income ā typically their salary. If your rental income is less than your interest, rates, and maintenance costs, you run at a loss on paper, and that loss reduces your taxable income. According to Australian Taxation Office data for 2022ā23, approximately 1.1 to 1.3 million properties are negatively geared in Australia in any given year ā roughly half of all investment properties. Total net rental losses claimed in that year came to $10.2 billion. The Parliamentary Budget Office estimates the revenue cost to the government at around $2.7 billion per year.
The 50% CGT discount is the other side of the equation. When you sell an investment asset you have held for more than twelve months, you are only taxed on half the gain. Introduced in September 1999 by the Howard government to simplify the previous indexation system, it applies to any asset ā shares, property, business interests ā but in practice it has disproportionately benefited residential property, which appreciates faster and is held longer than most other assets.
Put those two together and you have a powerful combination: immediate tax deductions for losses on the way in, and a halved tax bill on the gain when you sell. Add SMSF borrowing, which allows self-managed super funds to take on debt to buy property, and the incentive structure for channelling capital into housing is substantial.
There is another dimension that rarely gets discussed outside financial regulation circles: the banking system amplifies the same incentive. Under Australian and international banking capital rules, banks are required to hold less regulatory capital against residential mortgage loans than against most business loans. This makes residential lending more profitable per dollar lent. Data from the Australia Institute found that owner-occupied and investor housing lending represents about 24.6% of the Big Four banks' business ā yet generates roughly 39.5% of their total profit.
Research published in academic finance journals has found that in areas experiencing rapid housing price growth, banks tend to increase mortgage lending and reduce commercial lending as a fraction of their total assets. One study found that a standard-deviation increase in quarterly housing price growth was associated with a fall of approximately 0.63% in quarterly business loan growth in the same period. For a small business owner trying to borrow to expand, the capital that might otherwise fund business growth flows instead toward residential mortgages ā which are more capital-efficient for the lender and more tax-advantaged for the borrower.
Add all of that up and you have, over a generation, a system that pulls every available dollar of household and institutional capital toward housing. Prices respond. The price-to-income ratio drifts from three to nearly ten. And the household on the other side of the trade discovers that half its income is now pre-committed before it can think about starting anything of its own.
The productivity connection
Australia's multifactor productivity growth averaged around 1.6% per annum through the 1990s. Through the 2000s, as the property boom took hold, it fell to essentially zero. The Reserve Bank of Australia published a 2023 research paper ā "Doing Less, with Less: Capital Misallocation, Investment and the Productivity Slowdown" ā finding that the reallocation of capital toward less productive firms and sectors had slowed since the mid-2000s. Sectors dependent on external finance, which includes most small businesses, were hit hardest. As of August 2025, the RBA has downgraded its medium-term labour productivity growth estimate from 1.0% to 0.7% per annum.
It is worth being honest about what that paper does and does not say. The RBA researchers do not themselves blame housing costs for the dynamism decline ā they attribute capital misallocation primarily to market power and external-finance frictions. International peer-reviewed work out of the US and China does find that household mortgage debt and housing collateral lock-up suppress entrepreneurship through risk aversion and constrained borrowing, but no Australian study has yet formally tested that channel on local data.
So the argument here is not that the RBA has endorsed a housing-to-entrepreneurship causal link. It is that the correlation in the Australian data is stark, the mechanism is consistent with the international evidence, and capital misallocation by investors and missing entrepreneurs from households are two sides of the same coin. Capital that goes into land does not go into the businesses that would hire people, build things, and grow productivity. One shows up in the RBA's productivity statistics. The other shows up in CEDA's finding that Australians have stopped starting the kind of businesses that actually hire anyone.
The cost of starting has collapsed ā the household has not
I noted earlier that the tools to build a business have never been cheaper. It is worth returning to that point, because the gap is widening every year. A founder in 2026 can stand up a working website in an afternoon without hiring a developer. Bookkeeping, BAS preparation, contract drafting, and first-pass tax planning can be handled with AI tools at a fraction of what an accountant or solicitor charged a decade ago. Marketing copy, design, customer support, basic legal review ā most of it is now a monthly subscription rather than a salary. A solo founder can validate an idea, launch a product, and serve their first hundred customers for a few hundred dollars a month.
That matters for the diagnosis. If the cost of starting were the bottleneck, business formation would be accelerating. Instead ā at exactly the moment the supply side of starting a business has collapsed in cost ā entry rates for employing businesses have gone flat and under-30 founders have halved. The constraint is not skills, tools, or capital costs. It is the household balance sheet. A founder who can build everything for a few hundred dollars a month still cannot do it on no salary if the mortgage takes half of household income before they begin.
Will the 2026 budget fix this?
Treasurer Jim Chalmers has confirmed that Treasury is modelling reforms for the May 2026 federal budget. As of April 2026, no legislation has been introduced and no formal announcement has been made. The government's stated position until recently was that reforms were "not being proposed." That appears to have shifted.
The reform most commonly discussed is a cap on negative gearing deductions:
- The likely proposal: Losses on investment properties could only be offset against wages and other income for up to two investment properties per investor. Losses on additional properties would be "quarantined" ā deferred and offset only against future rental income from those specific properties.
- Grandfathering: Industry modelling from the Property Council, Real Estate Institute, and Housing Industry Association all assumes that existing investment properties would be grandfathered. If correct, the rules would apply only to future purchases, which limits the impact on current investors.
- CGT discount: A separate but related reform under modelling would reduce the 50% CGT discount to one third (33.3%) for assets held twelve months or more. This would apply more broadly ā not just to property ā and would affect shares, business sales, and other capital assets.
- Timeline: If announced in the May 2026 budget, implementation would likely begin in the 2027 or 2028 financial year, allowing for a transition period.
What this means in practice:
| Investor situation | Likely impact if reforms pass |
|---|---|
| Own 1 investment property | Minimal ā likely grandfathered, or still within the 2-property cap |
| Own 2 investment properties | Likely within the cap and grandfathered for existing holdings |
| Own 3+ investment properties | Deductions on properties beyond the cap would be quarantined for future purchases |
| Planning to buy a second or third property | Worth understanding the new rules before signing contracts |
| Holding assets with significant unrealised gains | CGT discount reduction (if passed) increases the tax on future sales |
And this is where anyone hoping the May budget will quietly restore the household runway should temper their expectations. A cap on negative gearing for future purchases, with grandfathering and a transition period, is a real reform. It is not a reset. A price base that has tripled relative to income over thirty years will not halve again in two. For a median household paying half its disposable income to a new mortgage, marginal tightening of investor tax concessions is helpful but nowhere near sufficient to rebuild a year of runway. This reform is a step. It is not a restoration.
What this might mean for you
Everything up to this point has had two audiences ā people who might start a business, and people who already own investment property ā and the takeaways are different for each.
If you are thinking about starting a business
The runway is the game. Before anything else, work out how many months of household living expenses you have saved and how many months you could realistically go without your salary given your fixed commitments. For most Australians under 40 with a mortgage, that number is uncomfortably small. A few things that actually move the needle:
- Treat your offset account as the runway. Every dollar in a linked offset saves you roughly 6% a year in after-tax interest and is instantly available if you need to live off it. It is the single most efficient way to build a runway while carrying a mortgage.
- Validate on the side first. The most expensive mistake people make is quitting the day job before there is any evidence the business works. Build it on evenings and weekends while your salary pays the mortgage. Do not touch the runway until the business has at least one paying customer.
- Partner income buffer. If you are in a dual-income household, the practical risk capital is one partner's salary covering the mortgage while the other takes the shot. This is unromantic, but it is how most Australian businesses actually get started now.
- Understand the real cost of waiting. If the plan is "I will start it when I am more financially secure," be honest about whether "more financially secure" ever actually arrives on the current price-to-income trajectory. Waiting has a cost too.
None of this is personal financial advice ā it is a framing for how to think about the runway question honestly.
If you own investment property
The question is not "should I sell everything before the reforms." It is whether your portfolio still makes sense under the new settings. A few general observations:
- Concentration risk. A portfolio heavily weighted toward residential property in one or two cities is concentrated in a single illiquid asset class with high transaction costs.
- Grandfathering matters. If the reforms land as industry modelling assumes, existing properties would be largely unaffected. The risk is for future acquisitions under a changed rule set.
- The CGT side is broader. A cut to the 50% CGT discount, if passed, affects shares and business sales too ā not just property.
- Review before budget night. If you are planning a transaction in the next twelve months, it is worth getting proper advice before the May 2026 announcement.
Bottom line
Australia's housing market is usually discussed as a problem for first-home buyers, or renters, or young families priced out of the suburbs they grew up in. All of that is true. But there is a quieter cost that rarely makes it into the conversation: the businesses that were never started, by people who could not afford to try.
Thirty years ago, a median earner in this country had enough slack in the monthly budget to save a runway, and enough room on the balance sheet to take the leap. Today, for most Australians under 40, that option is gone ā not because they are less ambitious than their parents, but because their mortgage or rent has eaten the space where the runway used to live. The data is consistent with it: employing-business entry rates flat for twenty years, under-30 founders halved, and the Australians still starting real businesses disproportionately the ones who bought houses before the ratios broke.
The 2026 budget may tighten some of the incentives that channelled capital into housing in the first place. That would be welcome. But it will not, on its own, restore the runway. The generation that lost it is going to need a different conversation about how they fund the risks they want to take.
This is general information, not personal tax advice. If you are thinking about starting a business, restructuring a property portfolio, or planning around the 2026 budget, talk to a registered tax agent or accountant who can look at your actual numbers.
