Highlights:

• Proposed changes to CGT and negative gearing risk shrinking rental supply
• Investors already face a high tax burden including stamp duty and land tax.
• Past changes to the way residential property is taxed have not ended well.
• Policy shifts could deepen Australia’s long-term housing shortage

Australia’s housing shortage could worsen if next month’s Federal Budget introduces changes to tax settings on investment properties cautions Angus Raine, Executive Chairman, Raine & Horne.

With potential reforms to capital gains tax (CGT) concessions and negative gearing under consideration by the Albanese Government ahead of the May Federal Budget, Mr Raine is warning that watering down tax concessions for property investors is likely to reduce rental supply at a time of record-low vacancy rates.

“History has demonstrated that tightening property-based tax concessions only serves to deter Australians from investing in residential property. Any such reforms introduced today would likely result in a reduction in the supply of rental properties. This would be financially disastrous for the more than one in four Australians who rent their home from a private landlord[i],” said Mr Raine. 

Past government interventions in the property market, at both state and federal levels, have consistently delivered poor outcomes. 

“History shows these policies rarely end well,” added Mr Raine. “Australia’s housing shortfall is structural and long-term, not cyclical. Without meaningful action to unlock supply, the shortage will persist for years.”

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

Mr Raine noted that residential property is already a heavily taxed asset class. 

“Investors are already slugged with stamp duty at the point of purchase, while facing an annual land tax impost.

“Reducing either the CGT discount and/or negative gearing provisions would potentially make residential property less attractive to investors at a time when rental markets across Australia are experiencing wafer thin vacancy rates and record-high rents.” 

Mr Raine pointed to past policy changes – including Victoria’s recent land tax reforms and the temporary abolition of negative gearing in the 1980s, as evidence of the risks of intervention.

“These policies saw investors exit the market, reducing supply and raising rents – outcomes we cannot afford to repeat.”

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

 One media outlet[ii] reported that the Albanese government is considering placing a cap on the number of properties that could be negatively geared by a single investor. 

These sorts of interventions will lead to inherently unfair situations.

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

“An investor could, for example, own two apartments in Bathurst with a combined value below $1 million, while another investor may hold a single property in Sydney, valued at $3 million, and receive greater tax advantages.”

A value-based cap, rather than limit based on the number of properties held, would provide a fairer outcome and help ensure tax benefits are not disproportionately skewed towards wealthier investors.

Broader flow-on effects

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

“We know that the vast majority of landlords own just one rental property[iii]. Most of these investors are hardworking mums and dads, who are quite sensibly relying on property to build personal wealth. 

“One in ten self-managed super funds also invest in residential property[iv], and any changes to the way property is taxed is likely to impact the retirement aspirations of tens of thousands of Australians,” said Mr Raine. 

“Any changes to the way property is taxed come on top of the Division 296 tax hikes on the earnings of super balances in excess of $3 million.

“The bottom line is that the Federal Labor government is focusing on low hanging fruit. Overtaxing residential property is not a solution to Australia’s housing shortage. Unless we shift the focus to unlocking supply – with faster approvals, less bureaucracy and better infrastructure planning – we risk entrenching Australia’s housing crisis for an entire generation.”

Raine & Horne is calling on the Federal Government to prioritise policies that boost housing supply, including faster planning approvals, reduced red tape and better infrastructure delivery.

For further media information, contact: 

Ava Crawford, Head of Marketing, Raine & Horne Group on 0402 304 331

[i] https://www.pexa-group.com/content-hub/property-insights-and-reports/analysing-australias-broken-private-renting-system/

[ii] https://www.afr.com/policy/tax-and-super/labor-confirms-negative-gearing-and-cgt-changes-in-the-mix-for-budget-20260227-p5o5yz

[iii] https://www.ato.gov.au/about-ato/research-and-statistics/in-detail/taxation-statistics/taxation-statistics-2022-23/statistics/individuals-statistics#Table8Individuals

[iv] https://data.gov.au/data/dataset/2fd970ec-984e-4593-bbad-2e69a5fa7a89/resource/7a50c5c8-5c0e-4a4b-a11e-feaad39f2bd0/download/smsf-annual-overview-2023-24.xlsx