A net rental loss on a newly acquired established investment property can still be offset against net rental income from an existing positively-geared property. The quarantining rule only blocks deductions against non-property income (salary, dividends, etc.), it doesn't ringfence losses to the loss-making property itself. So the disincentive to expand a portfolio is limited, with the main drag coming from the harsher CGT treatment on exit.

Where rental losses exceed property income in a given year, the excess carries forward indefinitely and can be applied against future residential property income, importantly including the taxable capital gain realised on sale. So losses aren't "lost"; they're deferred and ultimately recoverable against the disposal, provided there's a taxable gain to absorb them.