Over the past few decades, Australia has seen the long-term impacts of both state and Federal government intervention in the property market, under both Liberal and Labor – and history shows these policies rarely end well.

“On the contrary, history has shown that any steps that deter property investment are likely to tighten the supply of rental properties,” says Raine & Horne Executive Chairman Angus Raine. “And this would be a financial disaster for the more than one in four Australians who rent their home through a private investor.”

“Housing supply is not a short-term problem—it’s a generational one,” Angus adds. “Australia’s housing shortage is likely to persist for the next decade.”

Against this backdrop, the looming Federal Budget is expected to introduce changes that could further discourage investment, including potential reductions to capital gains tax concessions and possible reforms to negative gearing.

“Successive policies — from demand-side subsidies to a failure to cut red tape for developers — have contributed to a shortfall of new housing. Combined with cost-of-living pressures, this has created a perfect storm, deepening the imbalance between supply and demand,” Angus Raine says.

“Unless we shift the focus to unlocking supply—faster approvals, less bureaucracy and better infrastructure planning—we risk entrenching Australia’s housing crisis for an entire generation.”

What’s in store for property investors

It’s no secret the Federal government is considering scaling back the current capital gains tax (CGT) concessions on the sale of residential real estate that allow investors to claim a 50% discount on profits made on the sale of an investment if it has been held for over 12 months.

Federal Treasurer Jim Chalmers has also refused to rule out changes to negative gearing, which currently allow property investors to offset an ongoing loss from a property investment against their wage/salary income.

Annual losses on rental properties commonly arise where mortgage interest and the cost of other property-related expenses such as insurance, rates, maintenance and repairs exceed rental income.

One media outlet reported that the Budget may introduce a scaled back CGT discount for investors and potentially place limits on the number of properties that could be negatively geared by a single investor were still under consideration.

Obviously, this is not good news for property investors.

Bu if we dig deeper, it’s clear that these reforms are not good for all Australians.

Property is already highly taxed

As Angus Raine, a leading Australian property commentator, points out, residential property is already highly taxed.

“Investors are already slugged with high levels of stamp duty, as well an annual land tax impost. Reducing either the CGT discount and/or negative provisions just creates an added layer of tax at a time when rental markets across Australia are experiencing wafer thin vacancy rates and record-high rents.”

Angus points to previous tax changes on residential property, and the overwhelmingly negative outcomes that followed.

“In Victoria, we saw land tax reforms in 2024 that lowered the tax-free threshold for non-owner-occupied land from $300,000 to $50,000. As a result, investors pulled out of the Melbourne market, with a devastating impact on property values from which Melbourne is only just starting to recover,” says Angus.

“Those of us who have been in the property industry for many years will recall the events of the late 1980s. The then Labor government partially abolished negative gearing in 1985 by not allowing rental property losses to reduce tax on other sources of income.

“The resulting shortage of housing coupled with rising rents meant that by 1987 – just two years later, the policy was scrapped, and negative gearing reinstated.”

Baked-in lack of fairness - investor caps could skew tax benefits towards high-value property owners

Imposing limits on the number of properties that an investor can claim the CGT discount or negative gearing for, will lead to inherently unfair situations.

“Limiting tax savings to one or two properties may not reflect the true level of investment,” explains Angus.

“An investor could own two apartments in Bathurst worth under $1 million combined, while another investor may hold a single $3 million property in Sydney, and receive greater tax advantages.

A financial cap, rather than a property-based limit, would provide a fairer outcome and help ensure the benefits are not disproportionately skewed towards wealthier investors.

Broader flow-on effects

As Angus Raine points out, any changes to the taxation of residential property will have far-reaching flow-on effects.

“We know that the average landlord has two investment properties. Most are hardworking Australians who are quite sensibly relying on property to build wealth.

“However, one in ten self-managed super funds also invest in residential property, and any changes to the way property is taxed is likely to impact the retirement aspirations of tens of thousands of Australians,” says Angus.

“This comes on top of the Division 296 tax hikes on investment earnings of super balances in excess of $3 million.

“The bottom line is that the Labor government is focusing on low hanging fruit. Overtaxing residential property is not a solution to Australia’s housing shortage.

Interestingly, there has been little discussion about whether any proposed changes to negative gearing provisions and the capital gains tax discount would also apply to shares and other asset classes, which benefit from the exact same tax arrangements.

Raine & Horne is calling on the Federal Government to leave negative gearing provisions and the capital gains tax discount in place in order to avoid exacerbating an already challenging rental market.

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