The Albanese government’s overhaul of investor taxation is expected to slow housing prices, but experts are split on whether it will do what Labor wants – help more Australians own their own homes.
In a move dubbed the biggest housing policy change in a generation, Treasurer Jim Chalmers announced in Tuesday’s budget that inflation-adjusted indexation would replace the 50 per cent capital gains tax (CGT) discount.
As well, new investors will be banned from using negative gearing unless they build a new residence.
The Coalition has vowed to repeal Labor’s proposed changes to CGT and negative gearing, calling them “an assault on aspiration”, should it win the next election.
The housing industry is warning that the policy changes could stymie investment in building new homes by “creating uncertainty or reducing confidence”.
But Everybody’s Home – the national campaign to end the housing crisis – has applauded Tuesday’s changes, calling them a historic moment for the housing sector.
“For decades the federal government has spent billions of dollars lining the pockets of investors who pushed up the cost of housing and made inequality worse,” Everybody’s Home spokeswoman Maiy Azize told NewsWire.
She said the government had spent about $2bn a year on increasing the number of new houses but gave away “orders of magnitude” more through CGT discounts and negative gearing.
“Imagine if we had that money available to invest in public housing instead,” she said.
“We are starting to see that tide turn and it has been a real sacred cow that governments and campaigners have not wanted to touch.”
Ms Azize said the changes would also help slow runaway growth in housing prices.
“The big change from the perspective of everyone trying to save for a home, you can start saving for a deposit and won’t have to constantly worry if house prices will jump $150,000 in 12 months,” she said.
“The big thing we need to stop is this prodigious growth.”
Ms Azize says while the changes were a good start, overall Australia was still 640,000 social and affordable homes short of what was needed, expecting it to take about two decades to unwind.
“We used to be a good country on affordable housing,” she said.
“It used to be one in three people rented from the government – that was teachers, public servants, construction workers – all of them rented affordably from the houses.”
She said at the high point, one in four new houses were affordable.
During his budget speech on Tuesday, Mr Chalmers said the changes were about getting more Australians into their own home.
“We’re delivering a fairer tax system for workers, first-home buyers and future generations.” he said.
“Since 1999, house prices have risen over 400 per cent, more than twice as fast as average incomes.
“Our tax changes will help about 75,000 Australians achieve the dream of home ownership.”
Property groups slam proposal
While advocacy groups praise the proposal, Australian builders, construction and property industry associates slammed the changes, saying they would reduce the supply of housing.
As part of Labor’s response to rising housing costs, the government announced a National Housing Accord – a banding together of all levels of governments to build 1.2 million new homes over five years until June 2029.
REIA president Jacob Caine warned these tax changes would slow down the supply of new housing and ultimately make it harder to reach the target.
“Australia is already well behind the National Housing Accord target of 1.2 million new homes, so we need policies that support investment and new housing supply, not policies that make delivery harder,” Mr Caine said.
“Private investment plays a critical role in Australia’s housing system.
“At a time of acute rental stress and chronic undersupply, policy settings should be encouraging more investment into housing, not creating uncertainty or reducing confidence.”
HIA chief economist Tim Reardon echoed similar sentiments, saying inventors had been responsible for 43 per cent of new homes in Australia over the past year.
“While it might initially appear that limiting negative gearing to new homes only would result in an increase in new home supply, this logic only makes sense in a theoretical environment where there are only two investment options – new homes or established homes,” he said.
“In the real world, capital is mobile.
“Investors aren’t making the decision to invest in new or established homes – they can also redirect investment to industrial property, commercial property, shares or other assets.”
Will it impact prices?
While economists are split about the impacts the changes will have on the housing market, most agree it will slow down runaway house prices.
Commonwealth Bank senior economist Trent Saunders says the tax changes along with rising fuel costs and the RBA’s three interest rate hikes will moderately slow growth.
“In response to these policy changes, house prices are expected to eventually be 3 per cent lower than they otherwise would have been,” he said.
The tax policy is expected to directly slow the housing market by about 60 basis points in 2026 before taking a full 1 per cent off the growth rate next year.
“A key risk is that there is a larger short‑term response of house prices due to the effect of these policy changes on sentiment,” Mr Saunders said.
“If this occurred, price growth could ease by more than we expect based on fundamentals in the short term.”
