Labor's contentious plan to wind back negative gearing and capital gains tax concessions has passed parliament, sparking debate over its impact on the housing market. Treasurer Jim Chalmers said the reforms, announced in the May 12 budget, are designed to level the playing field between investors and first home buyers, addressing what he called a "broken status quo" that has locked a generation out of the housing market.
Key Changes to Tax Concessions
The flat 50 per cent capital gains tax discount for individuals, trusts, and partnerships is being replaced with cost base indexation and a 30 per cent minimum tax rate on capital gains. Negative gearing will be restricted to new builds from 1 July 2027, with generous grandfathering for existing investment properties. "This is all about encouraging investment in new housing supply while also respecting previous investment decisions," Chalmers said after the legislation passed on June 25.
Early Market Reactions
Australian house prices recorded their biggest month-on-month fall in years in June, with dwelling values declining 0.4 per cent nationally. Banking giant HSBC forecasts prices could drop up to 8 per cent by the end of 2027. Federal opposition attorney-general Michaelia Cash accused Labor of crashing the housing market, saying on Sunrise, "You have actually managed to crash the housing market." However, experts caution against attributing the decline solely to the tax changes. RMIT's Callum Logan noted that interest rate rises, higher living costs, and global uncertainty are also contributing factors. "Clearance rates were already heading south before the tax changes were announced," he said.
First Home Buyers Weigh In
7NEWS.com.au surveyed first home buyers about the reforms. One respondent said, "My partner and I are looking to buy in the next 12 months. Seeing prices stabilise is good for us. The rate things were going, we'd be up for another $50-100k on current prices." Another added, "Properties I'm interested in haven't been nabbed up by investors and prices have dropped to a reasonable amount." However, mortgage brokerage Loan Market reported that loan lodgements for first home buyers fell 11 per cent in the four weeks after the budget, though applications had been trending down all year amid three RBA rate hikes. One buyer lamented, "Prices may have dropped slightly but borrowing power has been nuked with rate rises." Another said, "It's not like a light switch. It won't happen immediately, primarily due to the grandfathering clause."
Investor Concerns
Property investor Dr Vivek Eranki warned the changes increase the tax burden on private investors, who provide a substantial proportion of rental housing. "If investment becomes less attractive, fewer people will be willing to supply rental accommodation," he said. National median rental prices have climbed 5.9 per cent in the year to June, reaching a record $705 per week, with a vacancy rate of just 1.6 per cent. Financial adviser Alex Jamieson said investors may turn away from property in favour of shares and ETFs, noting that property investing is "often sold as passive income" but involves significant stress and costs.
Expert Analysis
Australia Institute senior economist Matt Grudnoff described the reforms as a positive step. "If you think that housing is about a safe and secure place to live, this is good news. If you think housing as an investment, a way to build financial security and become rich, then this is bad," he said. He attributed a 25-year "housing super cycle" to the 50 per cent capital gains tax discount, which, along with negative gearing, encouraged investors to push up prices. "Over the last six years the average house has increased in price by $400,000. That's almost $70,000 a year. These changes will stop the rapid growth in house prices, giving hope to first home buyers," Grudnoff added.
