Australian landlords are preparing for sweeping changes in the upcoming federal Budget, which economists warn could trigger a wave of forced property sales and a potential decline in house prices of up to four per cent. The anticipated reforms, expected to be announced by Treasurer Jim Chalmers on Tuesday night, involve abolishing negative gearing and scrapping the 50 per cent capital gains tax (CGT) discount for existing properties purchased after the Budget.
Potential Impact on House Prices
Barrenjoey chief interest rate strategist Andrew Lilley forecast that the Albanese government's expected changes could cause house prices to fall sooner rather than later. 'I think it is likely that house prices will be in decline in each of May, June and July,' Lilley told the AFR. He estimates that the CGT change alone could lower house prices by 1 to 2 per cent, and if combined with scrapping negative gearing on new investments (while grandfathering existing ones and exempting new builds), prices could fall by a further 2 to 3 per cent. This would reverse the mini boom in housing and consumption that began with the First Home Owner's Guarantee.
Rental Market Concerns
UNSW Professor of Finance Peter Swan warned that stripping back tax concessions would force thousands of property sales and push rents even higher. 'Negative gearing is perfectly legitimate and part of every tax system, hence a possible fall in house prices. Will the young benefit? No. Any such sales will come out of the rental pool, driving up rents,' he told the Daily Mail. Swan argued that the policy reversal seems designed to push up rents, noting that when last adopted by the Hawke-Keating government, it was rapidly abandoned due to disastrous consequences. He added that neither the CGT discount nor negative gearing have contributed to housing unaffordability; rather, council development controls, supply restrictions, rising construction costs, and massive immigration have created the housing crisis.
Landlord Reactions
Queensland landlord Stephen O'Brien has warned he would increase rent from $865 to $1,235 per week on his investment property if the government proceeds with the changes. 'If there are no deductions, why run my investments at a loss? So who crashes out from Treasurer Jim Chalmers' reforms? It won't be me,' he said. His comments come after former Treasury economist Leith van Onselen predicted the housing market is heading for its biggest correction in 40 years, with rising interest rates, surging supply, and a weakening jobs outlook creating a 'perfect storm' for property prices.
Expert Views on Market Stability
However, Canstar data insights director Sally Tindall suggested that a significant correction is unlikely. 'If you are an existing investor, make sure you look past the headlines and dig into the details, in particular any grandfathering exemptions. The changes could well change the tax policy landscape, but whatever the government has planned, it's hard to see house prices falling off a cliff, considering they survived a global pandemic and 13 rate hikes in 2022-23,' she said. While the changes may offer hope to younger Australians locked out of the housing market, critics warn the plan risks fuelling higher rents that are already at record highs across the capitals.
