HIA responds to McKell Institute report on investor tax reform
The Housing Industry Association (HIA) has called for policymakers to prioritise increasing housing supply rather than altering investor tax settings, following the release of a new report by the McKell Institute recommending changes to taxes on property investors.
“All parties agree that Australia has an acute shortage of housing,” said Tim Reardon, chief economist at HIA. “The disagreement is in the extent that investors play a role as the cause of the shortage of housing.”
Reardon argued that the core issue is the insufficient number of homes relative to population growth, not investor activity. “Australia has 27 million people, and 11 million homes,” he said. “Even if investors are banned from owning homes, the problem remains that there aren’t enough homes.”
The economist noted that confidence in new home construction has improved with recent reductions in the cash rate, which he sees as a positive sign for addressing demand.
“Market confidence in new home building has been improving with a decline in the cash rate,” Reardon said. “This is good news, as increasing the supply of homes is necessary if Australia is to meet the growth in demand.”
He added that long-standing tax and regulatory burdens imposed by various levels of government have contributed to the ongoing undersupply of housing. “An acute undersupply of housing is evident across all markets following decades of ongoing tax imposts on housing and additional costs imposed by local, state and Australian governments,” he said.
Reardon dismissed the idea that negative gearing is the main cause of housing shortages. He said that investor profits over the past two decades were driven by strong capital growth, itself a result of demand outpacing supply.
“The cause of this shortage of housing is not negative gearing. Investors who have negatively geared have profited over the last 20 years, but this was only possible because very high capital growth eclipsed annual losses,” he said. “The capital growth was only possible because growth in demand for housing was far greater the increase in housing supply.
Investors, he pointed out, benefited because they anticipated that housing supply would not keep pace with demand, and government regulation has made it difficult to increase the number of homes available. “Collectively across all levels of government, overregulation made it too difficult to supply enough housing,” he said.
Reardon suggested that reducing expectations for future capital growth would require a substantial increase in housing supply. “If we don’t want excessive profits to be generated through negative gearing then we need to shift expectations for future capital growth in home prices,” he said. “This can only be achieved if there are enough homes coming onto the market.
“Addressing the undersupply of homes requires less tax, less fees and fewer regulatory barriers. If the goal is to have fewer investors, then the solution is to increase the supply of homes, reducing price growth and rental price growth. If these outcomes can be achieved, then investors will once again exit the housing market for other sectors.
“But investors aren’t the problem, they are simply the symptom of governments failing to allow the market to supply an adequate volume of homes.”
Reardon cited recent action by the New South Wales government to underwrite apartment sales as evidence of the impact of policies that have discouraged investor participation. “Just two weeks ago, the NSW government had to step in and underwrite the sale of up to 50% of ‘off the plan’ apartments,” he said. “This was necessary due to other policies that have forced investors out of the Sydney apartment market and seen the volume of apartments fall to half of their levels a decade ago.
“The proposal from the McKell Institute to adjust capital gains tax and negative gearing to apply more onerously on existing homes ignores the reality that new homes become established homes, and that this change is simply a change in the timing of the tax impost or a delay in when the government receives the revenue.”
Reardon described housing as a basic necessity and one of the most heavily taxed goods in Australia. He warned that changes to investor tax policy could undermine market confidence and further restrict new housing supply. “Changing taxes on investors, just as can be seen in Victoria in 2025, leads to market uncertainty, distortions and a decline in confidence,” he said. “This further impairs the supply of new homes.
“Discussions of tinkering with negative gearing and capital gains tax arrangements adversely impacted market confidence in 2019. Given the low volume of new homes commencing construction, and the large increase in population, discussion around additional taxes is unhelpful to the goal of increasing supply of homes.”
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