Industry body warns proposed CGT and negative gearing changes could further tighten rental supply
The Property Council of Australia has warned that potential changes to property tax settings in the May federal budget could drive rents higher and reduce the supply of rental stock.
Council chief executive Mike Zorbas (pictured top) said recent signals pointed to a package centred on higher property taxes. “The most likely approach, as flagged by Ministers to date, is property tax hikes alone,” he said. “Thirty-three percent Capital Gains Tax (CGT) discount versus equities at 50%, with a two-home negative gearing cap.”
Zorbas argued that tax settings which make investment in new housing less attractive than shares would weaken the pipeline of new supply. He said this would be especially challenging for Australians who can only afford to rent, a group he put at almost 30% of the population, and would raise concerns over intergenerational fairness.
He also cautioned against any move that could be perceived as retrospectively changing the rules for existing investors. “Even if you put the CGT discount on existing property to 33%, while leaving new homes untouched, and add grandfathering, upping tax rates on existing rental homes still means rents will rise and modelling shows housing supply will go down,” he pointed out.
Zorbas also suggested that higher holding costs and weaker post-tax returns could prompt some landlords to exit or redirect capital towards equities, tightening rental availability and reducing investor loan demand. He said that combination would be unlikely to produce a meaningful lift in first-home buyer activity, with prices only marginally affected and interest rates still elevated.
“Post budget, the Federal government can pass anything it likes with support from the Greens in the Senate,” he said. “Together they are 39 of 76 votes. Only an outbreak of good judgement in the Albanese Cabinet can help rental affordability now.”
He pointed out that around three in ten Australians are expected to remain renters over the next year and the coming decade, including would-be first home buyers whose median age is 34 nationally.
For many landlords, Zorbas said, modest rental yields mean capital gains are central to the investment case, once stamp duty, council rates, land tax, insurance and body corporate fees are taken into account. He warned that if investors shifted marginal capital away from housing and into shares, development feasibility would deteriorate, reducing activity for builders, subcontractors and apprentices.
He pointed to Victoria as an example of how tax and regulatory settings can affect investor sentiment and construction. He described the state as having a combined tax take from three levels of government approaching 40% in some locations, and said frequent changes to property taxes, including levies on foreign investors, had deterred long-term institutional capital and added uncertainty for developers.
He also highlighted a series of broader pressures bearing down on affordability and availability: rapid population growth, smaller household sizes, higher borrowing costs, increased construction expenses, and rising federal, state and local taxes. These factors, he said, were being compounded by planning and land use restrictions and protracted project assessment processes. Zorbas argued that these constraints were political in origin rather than investor driven, and that significantly more action would be required to address rental pressures and improve housing supply.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
