Economists remain split on how significantly the Federal Government’s latest housing tax reforms will affect property prices, with forecasts ranging from a modest slowdown in growth to potential falls of up to 5 per cent in the near term.
The Budget changes begin flowing through the market from May 12, when negative gearing is limited to new builds, immediately reducing tax advantages for investors in existing properties. A second shift follows in July 2027, when the capital gains tax discount is replaced with an inflation-linked system and a 30 per cent minimum tax rate, further tightening long-term returns and reshaping investor incentives.
The government says the reforms are designed to improve housing fairness, support first-home buyers, and encourage new housing supply; Treasury modelling suggests the changes will slow house price growth by around 2 percentage points over two years compared to previous forecasts, describing the impact as small and temporary.
However, economists remain divided on how the market will respond once investor behaviour adjusts.
At one end, AMP chief economist Shane Oliver warns prices could fall by up to 5 per cent in the near term if investors retreat due to weaker after-tax returns. He told the ABC that Australia’s underlying housing shortage is unlikely to be resolved without stronger supply-side growth.
Commonwealth Bank senior economist Trent Saunders said house prices are expected to eventually be around 3 per cent lower than they otherwise would have been. However, he said the adjustment would be gradual, with policy changes expected to subtract about 0.6 percentage points from annual price growth by the end of this year, and just under 1 percentage point over 2027.
He also warned there is a risk of a sharper short-term downturn if investor sentiment weakens more than expected.
Grattan Institute senior associate Matthew Bowes said the impact on prices is likely to be limited: “The reforms only impact investments going forward from now, compared to the very large size of the Australian property market; they don’t look to have a large impact on property prices.”
Grattan estimates house prices could be around 1 per cent lower than they otherwise would have been, broadly consistent with Treasury modelling.
On supply, economists remain divided. Commonwealth Bank expects the combined policy settings to be “neutral to slightly positive for supply,” supported by incentives for new construction. AMP, however, argues investor withdrawal could weigh on building activity and contribute to ongoing undersupply.
Grattan also points to broader structural constraints, particularly planning and zoning restrictions, as the key barrier to improving housing affordability, arguing tax changes alone are unlikely to materially shift supply outcomes.
Despite differing forecasts, most economists agree the reforms are more likely to slow price growth than trigger a sharp correction, with long-term housing outcomes still driven primarily by supply constraints rather than tax settings alone.