Australian landlords prepare for major Budget reforms that could spark widespread property sales, with economists predicting a potential four percent decline in house prices. The changes target negative gearing and the 50 percent capital gains tax (CGT) discount for properties bought after the Budget delivery.
Upcoming Tax Reforms Spark Debate
Treasurer Jim Chalmers plans to eliminate negative gearing and reduce the CGT discount on new investments during his fifth Budget presentation on Tuesday night. These measures aim to assist younger buyers struggling to enter the housing market, but experts caution they may unsettle investors and exacerbate record-high rents in major cities.
Economists Predict Immediate Price Falls
Barrenjoey chief interest rate strategist Andrew Lilley anticipates the CGT discount reduction and negative gearing curbs will accelerate house price drops. “I think it is likely that house prices will be in decline in each of May, June and July,” Lilley states. “The house price effect is the principal reason we expect the RBA would be able to remain on hold for the rest of the year.”
Lilley’s analysis suggests the CGT change alone could lower prices by one to two percent. Combined with negative gearing limits on new purchases—while grandfathering existing ones and exempting new builds—prices might fall an additional two to three percent. “This would turn around the mini boom in housing and consumption that began with the introduction of the First Home Owner’s Guarantee,” he adds.
Warnings on Rental Supply and Rents
UNSW Professor of Finance Peter Swan argues that removing these tax concessions will trigger thousands of property sales, shrinking the rental pool and driving up rents. “Negative gearing is perfectly legitimate and part of every tax system, hence a possible fall in house prices,” Swan warns. “Will the young benefit? No. Any such sales will come out of the rental pool, driving up rents.”
He notes the Hawke-Keating government’s prior attempt failed due to severe fallout. Swan emphasizes that housing shortages stem from council restrictions, supply limits, construction costs, and high immigration—not tax incentives. “Most economists want to preserve negative gearing because without it, rental supply will dry up,” he says.
Landlords Gear Up for Higher Rents
Queensland landlord Stephen O’Brien plans to raise his investment property rent from $865 to $1,235 weekly if reforms proceed. “If there are no deductions, why run my investments at a loss? So who crashes out from Treasurer Jim Chalmers’ reforms? It won’t be me,” O’Brien declares. His coastal property’s prime location ensures strong demand.
Sydney’s rental market underscores the strain, with crowds of 100 queuing for tiny studio inspections, resembling nightclub lines.
Broader Market Outlook
Former Treasury economist Leith van Onselen predicts the largest property correction in 40 years, fueled by rising rates, increased supply, and softening jobs. He draws parallels to New Zealand and Canada, where prices have dropped 20 percent.
Canstar data insights director Sally Tindall urges investors to review grandfathering details amid speculation. “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 2022-23,” she advises.
