By Ned Stevens, Charlie Gill and Sam Lawrence
The Federal Government has announced significant reforms to Australia’s property tax system, overhauling capital gains tax and limiting future negative gearing to newly built homes, while grandfathering existing properties.
Last night’s budget, claimed to be about creating “intergenerational fairness”, Treasurer Jim Chalmers announced an end to the Howard-era 50 per cent capital gains tax (CGT) discount, in favour of an inflation-indexed tax on real gains to improve equity in the tax system. The changes will take effect on July 1, 2027.
The Treasurer also announced changes to negative gearing as of last night, with future investors only able to negatively gear newly built properties. The changes only apply to future investments, and all current negative gearing arrangements will be unchanged until the property is sold.
But the real question remains: if changes are “levelling the playing field for first home buyers”, when can young people expect to see this in the housing market?
-
- I’m a renter: will these changes cause a spike in my rent?
Budget models indicate the reforms are likely to have a small impact on rents, with an expected increase of less than $2 per week for a household paying the median rent. This slight impact is because of a slower forecasted growth in property prices, which is forecasted to result in 35,000 fewer dwellings being built than under the previous tax rules.
Shadow Treasurer Tim Wilson criticised the move, telling ABC’s 7:30: “The solution that the government is putting forward is to build fewer homes, based on their own data, and to see an increase in rent.”
However, when Central News spoke to experts and economists, they indicated any impacts will be marginal.
Leo Patterson Ross, chief executive of the NSW Tenants Union, said he was not concerned about changes impacting rents.
“For a long time, we’ve been calling for reform to capital gains tax and negative gearing,” he added.
Patterson Ross said landlords who do want to raise rents as a result of the budget changes would have to be in a position to do so.
“Legally, within the tenancy contract, [rental increases] can’t be within a fixed term [and] they can’t be within 12 months of the last increase to do that immediately,” he said. “So there will be a delay in any attempt to increase rents.”
If there is an uplift in rental prices, economists also suggested renters are unlikely to see these increases in the short term.
Professor Carol Mills, director of the UTS Institute for Public Policy and Governance, said: “It’ll be grandfathered to allow current investors who’ve had that as a motivation for investment to be retained.
“So this will be a slow change to the marketplace.”
Professor Chris Leishman, an expert in housing economics at Adelaide University, said because investors can access the previous negative gearing rules and CGT discount on new builds, there is an “argument that investors will simply switch to newly constructed houses and units”.
Leishman said through encouraging the construction of new homes, any impact of investors not purchasing existing dwellings for the rental market would be alleviated.
However, the cornerstone of the tax changes is its aim to allow more first home buyers to enter the market.
- How will this help me buy my own home?
In spruiking the need for a better tax system, the government said many young Australians have less opportunity than their parents to build wealth and own their own home, as a result of unfair CGT and negative gearing concessions received by investors.
Designed to support first-home buyers entering the market, the winding back of these concessions is expected to increase the number of owner-occupiers by 75,000 over the next decade and save the average home buyer $19,000 at the current median price.
This is anticipated to have a “modest impact” on supply, with reduced growth in house prices modelled to result in only 35,000 fewer dwellings built than if no tax reform was introduced.
The government aims to more than offset this with the new Local Infrastructure Fund expected to support the delivery of 65,000 new homes. This fund aims to speed up enabling infrastructure such as roads, water, power and sewerage.
Despite the changes, Leishman warned it will take time for young Australians to feel the effects of the changes.
“[The reform] sounds good but the reality is that it will take a long time for any of these changes to filter through,” he said, adding this is because investors who currently negatively gear can continue to do so until they sell their investment property.
It means many investors may continue to hold their investment property to take advantage of the previous rules.
Joclyn Martin, managing director of the Housing Industry Association, said in a statement the budget sent “mixed messages” on housing.
“It introduces tax changes that weaken investment incentives at exactly the time Australia needs more private capital in housing,” she said.
“HIA remains concerned that changes to negative gearing and capital gains tax risk undermining housing supply, particularly rental housing, and offsetting the benefits of otherwise positive reforms.”
- Out of the blue? Where did the Albanese Government’s changes come from?
Negative gearing and the capital gains tax have been a part of Australia’s property system since 1936, and has been a hot topic of conversation for housing advocates and policymakers long before the Albanese government’s changes.
In 1985 it was a Labor government under Bob Hawke and Treasurer Paul Keating which first abolished negative gearing. By 1987, however, Hawke’s government had wound back the changes, with some concern rents had increased in Sydney and Perth, with a lack of investor demand supposedly causing low supply.
However, in 1999, PM John Howard introduced the capital gains tax (CGT) discount — a 50 per cent discount on the amount of tax you pay on asset growth. In basic terms, if you were to buy an investment property for $500,000 and sell it in 10 years’ time for $1,000,000, this would mean you would only pay tax on a gain of $250,000, as opposed to $500,000 under the previous rules.
Economists have claimed that this CGT discount has led to a rise in property prices. A research paper from the Grattan Institute found that since 1999, Australian property prices have increased at an average rate of 7.3 per cent every year.
Median Sydney house prices. Source: Property Carto.
With correlations between these property tax concessions and rapidly growing property prices, the then Labor Opposition Leader Bill Shorten took negative gearing and CGT changes to the 2016 and 2019 Federal Election. However, the policies proved unpopular among voters. Labor notably lost both elections as many critics feared Shorten’s policy would hit the nest eggs of Australians through increased taxation.
At the 2025 federal election, Prime Minister Anthony Albanese guaranteed “for the 50th time, we are ruling out changes to negative gearing and capital gains tax”.
Speaking to ABC Radio National about the impact of increased house prices on intergenerational equity, Albanese said: “Government is about making the right decisions, for the right reasons, for the times that you are in.”
Main image by Ned Stevens.
