The Budget, Tax Changes and the Property Market

Posted by Gavin Chau

What’s being proposed, and what it really changes

What’s actually on the table

In the lead-up to the federal budget, the government has signalled that it is seriously considering changes to investor tax settings. The two most likely measures are a reduction in the capital gains tax discount and some form of restriction on negative gearing. Of the two, changes to the capital gains tax discount appear more likely to proceed, while negative gearing reforms are still being debated in different forms.

Those reforms could involve limiting the number of properties that can be negatively geared or restricting negative gearing to new builds. If they are introduced, they are highly likely to be forward-looking, with existing properties grandfathered under the current rules.

None of this is confirmed yet, but the direction is clear.

This is not about prices

If you’re expecting these changes to push property prices down, you’re looking at the wrong part of the system.

These policies don’t directly set prices. They change incentives. And prices are set at the margin by behaviour, not by policy intent.

What actually happens

A reduction in the capital gains tax discount only matters at the point of sale. It doesn’t affect the value of a property while it is held. What it changes is the incentive to sell.

When the tax on selling increases, investors hold for longer. Turnover declines. Fewer properties come to market.

That’s not a demand shock. It’s a supply constraint.

Negative gearing works on the other side of the equation. Restricting it is intended to reduce investor demand for established properties and, in some cases, redirect that demand toward new builds. That shift does happen but it doesn’t change aggregate demand. It just moves where the demand comes from.

If investor participation falls, owner-occupier participation rises. The market still clears through the same constraints of borrowing capacity and available supply. In other words demand doesn’t fall. It rotates to other buyers.

This means it doesn’t materially change the long-term growth trajectory.

The driver that actually matters

The idea that restricting negative gearing will materially increase supply needs to be treated carefully. New supply can only be delivered when projects are financially viable. This is the real problem.

In simple terms, it often costs more to build a new property than the market is willing to pay for it. Construction costs, planning delays and compressed developer margins have pushed new builds above established prices in many markets. None of the policy changes affect those drivers.

Tax incentives may shift some demand toward new builds, but they don’t solve feasibility. Supply only increases where projects were already close to viable.

So the constraint remains and no new supply will magically appear.

Why this is happening now

As with most policy changes this is not purely an economic decision but rather a political one. This holds true whether the system is a nation, a team or a corporation.

The composition of the voter base has shifted. A larger share are now renters or prospective first home buyers, and housing affordability has become one of the most visible economic pressures.

Policies that reduce investor advantages and improve access at the margin for owner-occupiers are politically attractive, even if they don’t materially change the underlying mechanics of the market.

This is about redistributing participation, and garnering votes not resetting prices.

What happens next

If the changes are introduced with grandfathering, the short-term dynamic is very predictable.

All that happens is that demand is pulled forward ahead of the implementation date as buyers try to secure existing tax settings. Once the changes take effect, activity slows.

That changes timing, but it doesn’t do anything to change the long term direction of prices.

What actually drives the market

Over the longer term, the drivers of the property market remain intact.

Prices are determined by borrowing capacity, supply constraints and income growth. Land continues to reprice over time through monetary debasement.

These forces sit outside of the tax policy entirely. I don’t know if the government doesn’t realise this or if they are wilfully ignorant but the either way this is almost certainly going to be the way this plays out.

The real outcome

The system doesn’t reset. It adjusts.

Turnover declines. Supply remains constrained. Demand rotates from investors to owner occupiers.

Ownership becomes less concentrated. Investors rely more on asset quality and cash flow than tax advantages. Which means that the underlying drivers of the market remain unchanged.

In the long run its potentially a good thing in the social sense with a broader distribution of ownership but for investors all that changes is the path, not the destination.

Posted by Gavin Chau, on 28th Apr 2026