Concerns are intensifying across the real estate sector ahead of the Federal Budget, with major agencies warning that proposed changes to negative gearing and capital gains tax settings could weaken investor sentiment and further tighten Australia’s already constrained rental market.
Ray White Group Managing Director Dan White says the expected reforms will represent a significant shock to the industry, arguing they amount to “bad policy” and are fundamentally flawed given current market conditions.
Mr White said the sector is already operating in an environment of heightened uncertainty, with investors, developers and property managers closely watching for confirmation of the proposed changes and their implementation timeline.
He said current reports suggests the Budget may move to restrict negative gearing on established properties, with potential grandfathering arrangements allowing existing investors to retain current tax treatment until sale.
The reforms are also expected to include changes to capital gains tax settings, potentially replacing the current 50 per cent discount with an inflation-indexation model similar to pre-1999 arrangements, and applying across asset classes.
“Since 2019, the Australian Labor Party has consistently ruled out any changes to negative gearing and capital gains tax rules. During last year’s election, the ALP said 50 times that it would not change them,” he said.
“Earlier this year, the Federal Government asked for submissions to discuss potential changes to the CGT discount. We made a submission, alongside many other industry bodies … At no time was there mention of changes to negative gearing.”
Mr White said the scale of the proposed changes would represent one of the most significant structural shifts in housing investment policy in decades.
He warned that assumptions about investors seamlessly shifting capital into new housing supply may not hold in practice, particularly given ongoing feasibility pressures in the construction sector.
He also said housing policy debates risk oversimplifying the roles of investors and owner-occupiers in the market, noting they operate under different motivations and constraints.
Australia’s rental system is already under pressure, and any reduction in investor participation could further limit available rental stock in high-demand areas.
“We are working with government advisors and industry associations, including the REIA, to understand what changes may be coming,” White said.
Ultimately, the policy will heap more cost of living pressures on renters and risk damage to housing supply, said Mr White.
These are what he believes to be the key impacts of the proposed policy changes:
1. New rentals will be more expensive
New builds cost more than established properties, meaning they are typically more expensive to rent. The Federal Government is also falling behind its 1.2 million homes target, with Housing Industry Association research indicating Australia is on track to miss the target by around 20 per cent. High land prices, labour costs and construction constraints continue to weigh on supply.
Very simply, the policy would shift house price pressure into rent price pressure.
2. Renters in established suburbs will have fewer options
Families, key workers and long-term renters living near jobs, schools and services may face reduced availability of rental properties. New investment is more likely to concentrate in outer growth corridors and higher-density precincts, rather than established inner and middle-ring suburbs.
3. Regional markets may be particularly impacted
Many regional areas have limited new development opportunities and relatively high build costs compared to established housing stock. Removing incentives for investment in established properties could reduce rental availability without generating replacement supply.
4. Rent-vesting becomes more difficult for younger buyers
Rent-vesting, where younger buyers purchase investment properties in more affordable areas while renting near work or lifestyle hubs, may become less viable if negative gearing is restricted to new builds. This could narrow entry pathways into the property market for younger Australians.
5. Changes may not guarantee new supply
The policy does not directly improve project viability, particularly given rising construction costs. There are concerns investors may also be more cautious about resale value if the future buyer pool is more restricted.
There are also broader industry implications, including potential impacts on buyer and vendor sentiment, increased pressure on property managers dealing with tenant and landlord concerns, and implications for properties under management. While these may receive less political and media focus, they are expected to be significant operational considerations across the sector.
LJ Hooker warns investor participation could fall
Adding to industry concern, LJ Hooker has warned that proposed tax changes could impact investor sentiment and reduce future rental supply if participation from private investors declines.
LJ Hooker Head of Research Mathew Tiller said affordability is a legitimate policy focus, but Australia’s core issue remains structural undersupply.
“Housing affordability is a genuine issue, and it is understandable that governments are looking at ways to improve access to housing, particularly for younger Australians trying to enter the market. However, Australia’s biggest housing challenge today is not a lack of demand. It is a lack of supply.”
He said rental conditions are already tight, with low vacancy rates across major cities and ongoing upward pressure on rents.
“The country is still not building enough homes to keep pace with population growth and underlying housing demand. Rental markets remain tight, vacancy rates are low, and many Australians are already feeling pressure from rising rents and limited housing choice.”
He warned that any reduction in investor participation could have immediate consequences for rental availability, particularly if private landlords step back from the market.
“The more immediate impact is likely to be on the willingness of investors to continue supplying rental housing.”
Mr Tiller said this would likely require a greater role for government housing, community housing providers, and institutional investment to offset reduced private supply.
He added that long-term affordability outcomes depend more heavily on supply-side reform than tax settings alone, including faster planning approvals, improved infrastructure delivery, and better development feasibility.
Investor sales trends highlight emerging pressure
New analysis cited in the FoundIt report shows landlords sold 22,640 rental homes over the past three months, including 4,865 in Sydney and 5,565 in Melbourne.
The analysis found approximately 21 per cent of homes listed for sale in both cities over the period were previously rental properties.
The report described this as a significant flow of investor-owned stock exiting the rental market, with many of these properties potentially unlikely to return as rental housing.
It said the trend reinforces concerns that investor activity is already shifting, at a time when rental demand remains elevated.