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Will CGT and negative gearing cuts really make housing more affordable?

ByAndrew Mirams

The May 12th Federal Budget saw the most significant revamp of property investment tax in nearly 30 years announced by the highest income-taxing treasurer in Australia’s history.

Treasurer Dr Jim Chalmers’ massive changes to our 50 per cent capital gains tax (CGT) discount and negative gearing are not only a major broken election promise, but will result in a lot of financial pain for both investors and renters.

Here’s a basic rundown of the changes, with those for CGT tax discounts being the first since this system was launched in September 1999 by John Howard’s Coalition government:

CGT changes from July 1, 2027: 

  • the “blanket” 50 per cent CGT discount for property investors, and all other asset investment owners, will be replaced by a cost-base indexation system, with a 30 per cent minimum tax rate available for net capital gains 
  • property owners who sell their current homes in the future can still receive the 50 per cent CGT discount for gains accrued between now and July 1, 2027; in this way, they will be partially “grandfathered”
  • property investors who buy brand new properties can choose either the former 50 per cent CGT discount, or cost-base indexation system and 30 per cent minimum tax rate

Negative gearing from July 1, 2027:

  • negative gearing on residential property investments will be limited to brand new builds only
  • negatively geared properties purchased before the Federal Budget announcement will be “grandfathered” ie they’ll be exempt from Budget changes, regardless of whether they’re brand new and established properties

I’m not the only property or finance expert that’s pretty disgusted with Treasurer Dr Jim Chalmers’ announcements and what they’ll mean for both our investors and our renters.

Hotspotting founder, Terry Ryder, described the May 12th event as the “Betrayal Budget”, and one “built on lies and false assumptions”; former Cotality head of research and now, Herron Todd White chief economist, Cameron Kusher, openly admitted to saying the Budget was “woeful for investors” even it was helpful for first home buyers.

Meanwhile, Ray White chief economist Nerida Conisbee offered a plethora of reasons why she was wary, at best, of the changes. She maintained they would not remove housing pressure but would instead risk shifting pressure from sale prices to rents.

I think Finance Brokers Association of Australia, CEO Peter White AM said it best when even before the Budget announcement, he commented to realestate.com.au:

“The theory that (these changes) will drive down the cost of housing, to the extent where someone who can’t currently afford to service a mortgage, and enter the property market, will suddenly be able to, is overly simplistic and ignores the many other factors in loan approval.”

Changes will end in investor and renter pain 

While Dr Chalmers’ property changes in the budget were almost universally disliked by the market, they came as no real surprise, with the Treasurer suggesting multiple times before the event that he’d reduce the popular capital gains tax discount, and changes to negative gearing were also proposed.

While Dr Chalmers stayed tight-lipped about the exact nature of these adjustments, pre-Budget guesses about the amendments mostly proved true.

Whatever the outcome, such modifications are the last thing our investor market needs. New investment loans increased to their highest level in over four years in the September 2025 quarter, according to Australian Bureau of Statistics (ABS) data. The record $39.8 billion value of these loans was also a 17.6% uptick on the previous quarter.

With even a small reduction in CGT discounts impacting property investors’ tax liabilities, it’s unsurprising that many in the sector are now reviewing their property strategies.

Then, there’s the concern that the policy shifts are likely to have a knock-on effect on the overall housing market, including on future housing affordability and rent levels.

The many Budget analyses I’ve read by financial and property strategists, as well as my own extensive experience in real estate, have me thinking all of the above will now become a reality.

One of the saddest aspects of the changes to the 50 per cent CGT discount is that it will completely reverse what it was originally intended to do: help investors. And, by investors, I don’t just mean property investors, but all investment asset owners.

When Prime Minister John Howard first introduced the discount in 1999, he considered it a smart way to encourage investors to buy and hold properties for the long term. By reducing investors’ taxable gain by half, the CGT discount would also encourage investment competition and compensate for inflation.

…and, it absolutely did all these things.

The discount has pushed up property prices, encouraged investors to buy more than one home and hold them for the long term, and spurred competition.

In the same way, negative gearing has been a big incentive to investors. Under that scheme, when the costs of owning an investment property outweighed the income it generated, investors could reduce their tax liability, making it easier to enter the market and hold onto their assets. Scrapping negative gearing now is a very big deal to investors trying to break into the market. With no tax incentive, tell me why should investors take unnecessary risks without decent compensation?

The recent changes to investment property ownership in Victoria should have taught our Treasurer not to make such bold moves on investment property policies.

After all, Ray White data showed Victoria lost more than 20,000 rental properties in the year to mid-2024. Ms Conisbee also pointed out that the result of the state’s policy changes was not greater affordability overall, but rather a redistribution: buyers benefited from weaker price growth, while renters faced tighter supply and stronger rent increases. 

Two years on, and it seems our federal government hasn’t learned a thing.

What will likely happen

In my view, and that of many financial and property experts, changes like this are unlikely to make housing more affordable, nor will they make life easier for investors or their tenants.

I certainly don’t believe these turnarounds will genuinely help the people that the government and anti-CGT discounters believe they will.

Instead, the new changes will create one, if not several, of the following situations:

1. More investors will leave the market, meaning our rental supply will drop

For potential tenants trying to find a new home, in an already tight and high-priced rental market, this is not a good outcome.

2. Investors may sell up and buy again in entry-level suburbs, where properties are not negatively geared

Yet again, this will impact budget-priced and first-home buyers, as it will result in high investor competition and lower supply.

3. “Grandfathered”, and other, investors may decide to stay in the market, and hold onto their houses longer

After all, as Ms Conisbee puts it, “selling means giving up existing tax treatment”.
At the same time, such a situation still means less investors either buying or selling.

4. Some investors will increase their rents to cover the cost of tax losses

Again, for tenants already struggling to pay rent, this is not a happy result.

Buying brand new

Then, there’s the government’s push for investors to only buy brand new properties, rather than established homes. But new properties are often in the outer ring or other locations that may not be suitable for tenants.

Also, one of the main issues facing Australia right now is a shortage of new homes. Our construction costs are still high, and the number of tradespeople is low.

Our mum and dad investors can’t always afford new homes either, whereas they may be able to afford an older one more easily. 

Dr Chalmers confidently announced that the Federal Budget would include a $2 billion Infrastructure Fund, which would result in 65,000 new properties being built in the next decade; but his National Housing Accord’s promise to build 1.2 million new homes in five years is already lagging well behind schedule.

So, I’m not terribly confident about this new, and equally spectacular, promise. Actually no, let me change that – there is a 0% chance of this happening and supply getting anywhere close to demand!

“Intergenerational inequity”

To quote the Federal Government on the recent changes: “They’ll help level the playing field for first home buyers, preserve the gains investors have made, and support investment in new housing supply. (They’ll also) rebalance our tax system, allowing the government to take pressure off wage earners and first homebuyers”.

The “intergenerational inequity” phrase has certainly been bandied about by the Treasurer too many times to count and is also a phrase that’s clearly enjoyed by anti-CGT discounters. This group will tell you that this tax relief has created a property society marked by wealth inequality and unfairness, especially for first homebuyers. 

This is simply not true!

ABS data show that property investors account for only about 22 per cent of all homeowners, and the majority are small-time “mum and dad” types with average incomes. In addition, 68 per cent own just one rental investment home.

As for these Budget changes to investment properties creating intergenerational fairness?… not a chance! In fact, like many of our property and finance experts, we believe these changes are more likely to make life for our younger generations worse.

As Ms Conisbee put it, and I couldn’t agree more: “Older Australians have been able to build wealth through established property over decades, with the support of the existing tax system. Restricting negative gearing to new builds means younger buyers are increasingly locked out of the same pathway.”

“They are being asked to enter the market later, with higher prices, larger deposits and fewer investment options. A policy designed to improve fairness could end up narrowing one of the few remaining ways younger Australians can build housing wealth.”

There you go, after Dr Jim and Albo promised over and over again before the last election that there would be no changes to negative gearing, there no so-called “change of position” is being called out for what it is – complete bulls..t!

Talk to a mortgage broker

It’s clearly an anxious time for investors and renters, but that doesn’t mean you have to struggle on your own. Whatever the future holds for you and your property plans, the experienced team at Intuitive Finance can help you. We know the property market back to front, and we’ve been where you are, so we can take you step by step through your opportunities and possibilities. Give us a call today to organise a complimentary strategy session with us.

Andrew Mirams
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