The upcoming May Federal Budget is expected to introduce changes to Australia’s capital gains tax (CGT) settings for housing investment, reportedly with support from the Australian Greens.
While generational differences in the use and benefit of the CGT discount are often central to the debate, there remains a long-standing misconception, that reducing the CGT discount will meaningfully improve housing affordability or access.
Without directly increasing supply, tax reform alone cannot solve a supply-constrained housing market.
For those advocating change, several key questions remain.
Any adjustment to CGT must carefully consider its impact on new housing delivery.
Proposals that differentiate between new and existing homes, for example, retaining a higher discount for new properties and reducing it for established dwellings, attempt to protect or incentivise new supply. Some models suggest a 50% discount for new homes and 25% for existing stock. The McKell Institute has proposed a 70/30 split, designed to further encourage investment into newly built apartments.
However, the practical challenge remains:
Investors underpin a significant portion of apartment pre-sales, which in turn unlock construction funding. Any uncertainty or reduction in after-tax returns risks slowing this pipeline.
There is also a secondary effect. Many owner-occupiers purchasing new homes rely on the future ability to sell into an active investor market. If the appeal of investing in residential property diminishes, that liquidity, and confidence, may weaken.
Property investment does not exist in isolation. Investors compare asset classes.
If residential property becomes less tax-efficient relative to equities, capital may simply flow elsewhere, without delivering any additional housing supply. That shift could reduce the number of new rental dwellings delivered at a time when vacancy rates remain historically tight across major cities.
In a supply-constrained environment, reducing investor participation risks worsening rental availability rather than improving affordability.
Policy design matters. The sector has already experienced extended delays in the rollout of federal BTR tax settings, creating uncertainty during a period when clarity was critical.
For institutional investors, particularly in the Build-to-Rent (BTR) space, stability and predictability are essential. Capital allocation decisions are long-term. If CGT changes are layered with complexity or political compromise, the result may be hesitation rather than participation.
Where will the revenue go?
If CGT reform raises additional government revenue, its ultimate impact will depend on how those funds are deployed.
Will they be directed toward unlocking new housing supply, addressing planning bottlenecks, infrastructure funding gaps, and delivery constraints?
Or will they be absorbed into broader budget pressures?
Without reinvestment into supply-side solutions, tax reform risks being symbolic rather than structural.
As a BTR property management business, our perspective is straightforward: Australia’s housing challenge is fundamentally a supply challenge.
Institutional capital, long-term rental platforms, and professionally managed BTR communities are part of the solution, but only if policy settings remain stable, competitive, and supportive of new development.
CGT reform may play a role in shaping investment behaviour. However, unless it is carefully designed to protect and encourage new housing delivery, it risks raising more questions than it answers.
In a market already navigating cost pressures, planning delays, and construction constraints, confidence is currency. And confidence is built on clarity.
