Why the government's tax changes won't fix housing.

I'll say upfront: I don't think this policy is going to do what the government says it will do. And I think a lot of people who are cheering it on right now are going to be disappointed - or worse, paying more rent - in a couple of years.

Back in May, the treasurer, Jim Chalmers stood up and announced the biggest tax shake-up in 25 years: negative gearing restricted to new builds from July 2027, the 50% CGT discount gone, replaced with indexation and a 30% minimum tax. It's law now. And it's been sold to us as the thing that finally gives first home buyers a fair shot against investors.

I want to believe that story. I really do. But when you actually sit with the mechanics of this policy instead of the headline, it falls apart pretty quickly.

It's much more hype than a genuine attempt to fix housing.

Start with this: almost nothing changes for existing investors. Any property bought before 7:30pm on budget night keeps its old tax treatment, forever. New builds are completely exempt from the negative gearing changes - investors can keep doing exactly what they've always done there (though its a very small number of investors interested in new builds). Trusts, super funds, build-to-rent developments - all carved out. For existing investments the CGT changes don't bite until gains accrue after July 2027.

Treasury's own number for how many properties shift from investors to owner-occupiers because of this is around 75,000 - but that's not a one-off, or even an annual figure, it's spread over the next decade. So it's roughly 7,500 homes a year changing hands from investor to owner-occupier, nationally. Set that against a housing shortfall measured in the hundreds of thousands, and annual population growth alone adding well over 100,000 new households a year, and the number stops looking impressive fast. Quoting "75,000 homes" as a single headline figure is technically correct (though only a projection) and manages to make a fairly small annual effect sound like a much bigger one.

It looks like a revenue grab wearing a housing costume

The CGT change - dropping the 50% discount for cost-base indexation and a 30% minimum tax - doesn't just apply to housing. It applies to every CGT asset: shares, commercial property, business assets, even pre-1985 assets that have sat outside the CGT net for decades. Commercial landlords get hit with the full CGT change and don't even get the new-build carve-out residential investors get. If this were genuinely a housing affordability measure, why does it reach into someone's share portfolio or their industrial warehouse?

I don't think that's an accident, and I'm not the only one who's read it that way. The Business Council told the Senate inquiry the changes would reduce investment and add complexity right across the economy, not just in housing, and that the process felt rushed and piecemeal. When a "housing affordability" policy quietly rewrites the tax treatment of every capital asset in the country, that tells me the housing story is just marketing not the actual goal. If the goal was genuinely to fix the imbalance between investors and first home buyers, you'd expect a measure targeted at, well, houses.

And it's worth looking at who's actually advocating on each side of this. The pushback isn't coming from people with no idea - it's coming from the people who are actually in the market: the Business Council, property industry groups, NAB and CBA's own economists, real estate commentators, tax and accounting bodies like CPA Australia, and economists like Robert Carling at the Centre for Independent Studies. These are people whose job is to price risk in this exact market, day in and day out. On the other side, the loudest cheerleaders for the reform have been the Grattan Institute and the Australia Institute - both openly progressive policy shops that have been campaigning to scrap negative gearing for close to a decade, regardless of what budget was on the table. I don't think it's unreasonable to notice that the people with actual skin in the game are the ones raising the alarm, and the people cheering it on are largely the same activist think tanks who wanted this outcome before the policy details even existed.

Investors won't rush into new builds either

The government's whole pitch rests on this idea: take away the tax perks on established homes, and investor money will just redirect itself to new builds instead, since that's where negative gearing survives. I don't think it's that simple, and I don't think enough people are asking why.

New builds cost more to buy than established homes (and around 40% of their cost is from government taxes, fees and regulation) while offering the same or worse rental return, so the yield is lower right from the start - and lower yield means a bigger gap between rent and holding costs to fund out of your own pocket. Off-the-plan and house-and-land purchases also come with a settlement period that can run a year or two, during which you're servicing a loan (often a construction loan, which behaves differently to a standard mortgage) with no rental income at all. And construction costs have been climbing hard - a few of the tax advisers writing about this reform have made the same point: the tax benefit on a new build isn't worth much if the build itself is "non-economical" once the full costs are factored in. Add in the valuation risk on completion, the risk of a builder going under mid-project, and the fact you're buying something you can't inspect yet, and new builds simply aren't a like-for-like swap for an established home in a proven suburb.

So a decent chunk of investors won't relocate to new builds at all - they'll either sit on the sidelines, hang onto what they've got for longer (which exacerbates to the rental supply problem), or decide property isn't worth the hassle any more. The government is banking on investor capital flowing smoothly from one column to the other. It won't.

Rents are going up, not down

This is the part that should worry most people, and I don't think it's had nearly enough airtime.

Under the new rules, if you buy an established property after budget night and it runs at a loss, you can't claim that loss against your overall income any more - it gets quarantined against future rental income or a future capital gain. Think about what that does to an investor's incentives. Those trapped deductions are only worth anything once you actually sell and make a gain. So why would you sell now? You'd hang on, wait for the gain, and use the loss then. Real estate commentator Tom Panos has called this the "gridlock" effect, and I think that's exactly right - a bigger tax hit on selling just means people stop selling. That's the opposite of freeing up stock for first home buyers.

Then there's the investors who decide the whole game isn't worth it and simply leave the rental market. Property Investment Professionals Australia's (PIPA) own investor survey found more than one in three would stop investing in property under a CGT cut like this. If even a half that number exit, the number of homes available to rent shrinks dramatically while the number of people needing to rent doesn't. NAB's head of Australian economics has spelled out the mechanism plainly: landlords will need higher rental yields to make up for what they've lost in tax benefits, and NAB and SQM Research are putting that at rent rises in the order of 25-30% if prices hold flat at current levels.

Compare that to what the government itself has been telling us: that renters can expect to pay about two dollars a week more. Two dollars? I don't know the last time anyone saw a rent increase that small maybe in the 1960s? If independent bank economists, industry surveys and rental analysts are all pointing to numbers in the tens of percent, and the government's own line is "don't worry, it's basically nothing," one of those is not a serious estimate. I know which one I trust more, and it's not the one written by a government trying to sell me higher taxes.

The real problem was never the tax laws

Here's the thing that really frustrates me. Treasury's own people told a Senate committee that the core issue in the housing market is simply that we're not building enough homes. CPA Australia said the same thing in plain language - tax tweaks need to go hand in hand with actually lifting supply, building capacity, and speeding up planning. On its own, a tax change doesn't build a single house.

And look at the government's own figures: this tax package is expected to mean roughly 35,000 fewer new homes built, offset only by separate, unrelated supply measures adding back around 30,000. So even by Treasury's own admission, the tax reform part of this is a net drag on construction and will LOWER housing availability.

That lines up with everything that has driven prices up for the last decade, regardless of who's buying: population growth outpacing what we build, a shortage of tradies, materials costing more every year, planning approvals that crawl along at a snail's pace depending which council you're in, and infrastructure charges that can add tens of thousands of dollars before anyone's even started digging. None of that gets touched by changing who can claim a deduction on an existing house down the road. You can shuffle ownership of the same houses between investors and first home buyers all day long - it doesn't create one extra home.

Conclusion

While these changes will possibly shift some properties from investors to owner-occupiers over time, 7,500 homes a year is a poor outcome for what's been sold as the biggest tax shake-up in 25 years, and I think that gap between the scale of the change and the scale of the announcement tells its own story.

The incentive to hold rather than sell risks tightening the rental market even further, and the government's own numbers say we'll build fewer homes because of it, not more. If we're serious about giving first home buyers a real chance, the answer was never going to be found in the tax act. It's in how fast we can build, how many tradies we have, what it costs to get a DA approved, and how much land we're prepared to release. That's the harder conversation, and it's the one I wish we were having instead.