Chalmer's negative gearing and CGT changes will barely effect the housing investor

When it comes to residential real estate, changes to Capital Gains Tax and Negative Gearing will make little difference to housing affordability, according to a study by the Australian Institute for Progress.

Details are in a report you can download by clicking here

Executive Director Graham Young said that over the last 10 years the owner-occupier generally got more advantage out of the tax system than the investor, and that the new system would only change that marginally, making virtually no difference to housing affordability.

“Over the last 10 years, using actual figures, an owner-occupier would have received a modelled return on their residence of up to 16.08% after tax (depending on their borrowings).

“This compares to a return to a top marginal tax paying investor of 15.19%. Using the Chalmers’ formula this investor would receive 13.54%, which is 1.65 percentage points lower, but still better than most alternatives.

“On the same 10-year comparison, the modelled returns were only 8.21% for superannuation, 5.83% for shares and 1.05%-1.30% for cash.

“Would this investor have deserted the residential market for returns that are 39% lower? Obviously not. They would still have been in the market competing for existing housing as there is no better place for their money.”

Mr Young said the major reason the returns were not so different is because CGT directly taxes the return on the asset, not the equity, and abolishing negative gearing defers the tax deduction for losses rather than cancelling it altogether.

“Assets that can be financially engineered can still give a return that is tax-sheltered, which means this policy encourages investment in low risk assets with reliable returns more than the previous one.”

Mr Young said that Dr Chalmers appears to think that preserving the existing CGT and negative gearing regime for new housing will cause stock to magically appear and free up established housing for owner-occupiers.

“The problem with quarantining the existing tax regime to new housing is that in the March quarter 2026 there were somewhere around 57,000 investors financing purchases, but only around 54,000 new home starts, and increase on the previous quarters.

“Owner-occupiers buy new properties too, so all the treasurer has achieved is to overwhelm new home buyers who want to live in a new property with a tsunami of investors capable of consuming more than 100% of the available stock.

“This will lead to new dwellings inflating faster than established ones, forcing buyers back into the established market, pushing prices up there.

“The reality is that you can’t insulate one part of the market from another – they all work in concert, which is something you should learn early-on in economics.”

Mr Young said that if Jim Chalmers’ tax changes weren’t going to make houses more affordable, and housing was still significantly more attractive to investors than the alternatives, then their only effect was to raise more taxes.

“I guess that’s why he bothered with this at all, but at least he could have been upfront about it. As his Treasury Secretary said ‘The money has to come from somewhere’.”

For further information contact Graham Young on 0411 104 801 or graham.young@aip.asn.au.