As Labour pulls back negative gearing and the CGT discount, experts warn that house values might drop by as much as 4%. Australian landlords are preparing for significant budget changes that are anticipated to cause a wave of forced property sales.
After delivering his fifth budget on Tuesday night, Treasurer Jim Chalmers is expected to do away with negative gearing and the 50% capital gains discount for already acquired properties.
Younger Australians who have been shut out of the property market may find some hope in the revisions, but detractors caution that the idea runs the danger of upsetting investors and driving up rents, which are already at all-time highs in the capitals.
According to Andrew Lilley, chief interest rate strategist at Barrenjoey, the Albanese government’s anticipated modifications to the capital gains tax discount and negative gearing could result in a decline in home prices sooner rather than later.
He noted that a steady drop in home prices would lessen inflationary pressures and consumer expenditure, which would lessen the need for the Reserve Bank to raise interest rates.
Lilley told the AFR, “I believe it is likely that house prices will be declining in each of May, June, and July.”
“The main reason we anticipate the RBA being able to stay on hold for the remainder of the year is the house price effect.”
The capital gains tax adjustment will result in a 1% to 2% decrease in home prices, according to Lilley’s report.
According to Barrenjoey strategist Andrew Lilley (pictured), property prices would drop right away as a result of the Albanese government’s anticipated adjustments to the CGT tax cut and negative gearing.
On Tuesday, Treasurer Jim Chalmers (shown) arrives at Parliament House to deliver the 2026 Budget. Proposed modifications to property tax breaks have sparked heated discussion.
According to Mr. Lilley, prices might drop by an additional two to three percent if negative gearing on new investments is eliminated while grandfathering current ones and exempting new construction.
“This would reverse the housing and consumption boom that started with the first home owner’s guarantee,” he stated.
Peter Swan, a professor of finance at UNSW, repeated those predictions, cautioning that eliminating the tax breaks will force thousands of property sales and drive up rents.
He told the Daily Mail, “Negative gearing is entirely legitimate and part of every tax system, therefore a possible reduction in house values. Will the young benefit? No. The policy flip appears to be intended to increase rents, as any such sales will be removed from the rental pool.
“It was quickly abandoned due to disastrous consequences when it was last adopted by the Hawke-Keating government.”
“Doubtless, it will be reversed for a second time,” Mr. Swan warned, adding that any relaxation of the regulations would have detrimental effects on the supply of rental property, which he claimed is mostly driven by negative gearing.
Peter Swan, a professor of finance at UNSW (pictured), cautioned that eliminating the tax breaks would cause thousands of properties to be sold and drive up rents even further. “Neither the CGT discount nor negative gearing have contributed to housing unaffordability.”
“The housing crisis has been caused by council development controls, supply restrictions, rising construction costs, and massive immigration.”
According to Mr. Swan, no respectable economist he was aware of suggested eliminating negative gearing.
Treasury has consistently advocated for it. Income should be taxed, according to the Tax Act, he stated.
“The rental supply will dry up without negative gearing, which is why most economists want to keep it.”
Landlord Stephen O’Brien of Queensland has already threatened to raise the rent on his investment property from $865 to $1,235 per week if the government moves on with significant changes to negative gearing and capital gains tax.
“Our investment property is on the coast in a high-demand location, within walking distance of a patrolled beach,” he said, adding that his tenants could find another place to live if they couldn’t afford the hike.
The startling truth of Sydney’s rental crisis: a queue of 100 individuals waiting to view a ‘small’ apartment spans the street like a queue at a nightclub.
“Why run my investments at a loss if there are no deductions?” Who then abandons the measures implemented by Treasurer Jim Chalmers? I won’t be the one.
His remarks follow former Treasury economist Leith van Onselen’s warning on Monday that the housing market is about to see its largest correction in forty years due to a “perfect storm” of rising interest rates, an increase in supply, and a worsening job outlook.
He forecast that Australia would likely follow similar economies like New Zealand and Canada, where home values have already dropped by roughly 20%, as Sydney and Melbourne’s housing prices begin to decline.
“If you are an existing investor, make sure you look past the headlines and dig into the details, in particular any grandfathering exemptions,” said Sally Tindell, director of Canstar data insights. “The changes could well change the tax policy landscape, but whatever the government has planned, it’s hard to see house prices falling off a cliff, considering they survived a global pandemic and 13 rate hikes in 2022-2023.””
