REA Group modelling suggests capital gains tax and negative gearing changes will hit Australia's high-end housing market
Australia's housing market faces a shock equivalent in scale to six interest rate rises when the federal government's overhaul of capital gains tax and negative gearing takes effect, according to modelling by REA Group economists.
The reforms, compounding pressure already created by recent rate movements, apply to established investment properties from July 2027. Newly built homes are exempt.
"The estimates we have suggest home prices will probably be a little bit lower than they would otherwise be," said REA Group economist Angus Moore (pictured top). "The effect here is probably not particularly large, and probably not larger than the effect that we've seen from interest rates or the three consecutive rate hikes we've already seen."
Moore said the modelling pointed to "small, sort of single-digit percent effects on home prices over the longer run", adding that the impact would not be uniform across the market.
"We'd expect to see larger effects in the sort of areas that are more popular with investors currently," he said. "That tends to be the more affordable end of the market."
This contrasts with the pattern observed from interest rate rises, which have weighed more heavily on higher-priced properties.
"We've got rate hikes... putting downward pressure on prices broadly, but probably more pressure on the more expensive properties," Moore said. "And these tax changes... will have aggregate effects, but probably the effects are a bit larger at the more affordable end."
The economist acknowledged uncertainty around how investors will respond once the tax reforms are legislated, noting limited precedent for the changes. "We don't have a lot of evidence to go on... we haven't seen changes to these policies since 1999 for capital gains," he said.
On rents, Moore said aggregate impacts were expected to be contained, though risks remain given existing supply constraints. "The modelling suggests the aggregate effect on rents is pretty modest … but given that the rental market is already very tight… there is a risk that accelerates disproportionately," he said.
Moore stressed that addressing affordability in the longer term would require increasing supply. "If we want to improve housing affordability, that really comes back to building more homes," he said.
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