Housing affordability remains one of the most persistent economic pressures shaping Australia’s social and political landscape, and changes to the structure of the housing market carry direct implications for financial stability and generational opportunity. Current debate around capital gains tax concessions highlights a deeper policy question: whether existing tax settings are contributing to structural imbalances between investors and first-home buyers.
Australia’s capital gains tax benefits are intensifying competition in the housing market as more than 80 per cent of investors buy existing dwellings, shutting younger Australians out of the market, an independent economist warns.
The Albanese government has faced a growing divide in housing policy reform between boosting supply or reducing demand pressures that have driven prices out of reach of young Australians.
The issue continues to remain top of mind across the Queensland electorate with polling from SEC Newgate showing that cost of living and housing affordability are the top two concerns for voters.
Independent economist Saul Eslake believes the capital gains tax had done little to boost housing supply and, instead, created uneven competition for existing properties between investors and first home buyers, contributing to what economists and policymakers describe as intergenerational inequity.
“Lending data tells us more than 80 per cent of all the borrowing that is undertaken by residential property investors is for the purchase of established housing,” Eslake told ABC Radio.
While some argue reducing investor incentives could discourage housing investment, Eslake said that outcome may be necessary to ease prices, adding the tax, as it stood, was too generous.
“It is substantially more generous than the arrangements which it replaced in 1999…and because property prices have risen at a much faster rate than the rate of other assets such as shares, it’s been especially generous to investors in residential property,” Eslake said.
“The capital gains tax discount has incentivised investors to compete with would-be homebuyers for houses that already exist and that’s had two effects. One, it has contributed to the faster rate of house inflation than inflation of other prices and, secondly, investors have out-competed would-be homebuyers for buying those properties that already exist.”
According to a Treasury official at the Senate Select Committee on the Operation of the Capital Gains Tax Discount, changes to the capital gains tax discount would do little to ease supply issues but could increase home ownership rates.
Finance Minister Katy Gallagher told the ABC that both the Prime Minister and the Treasurer said the government would focus on “intergenerational issues around housing.”
“The Treasury provides the government with advice all the time on matters relating to the budget. This issue of capital gains tax, which the Liberals and the Greens established this select committee into, is looking into all matters relating to that.
“We want to lift every lever available to ensure that younger people can get into the housing market and afford to buy their own homes,” Senator Gallagher said.
This argument is not new, with Senator David Pocock and Senator Jacqui Lambie commissioning a probe into options for reform of property tax concessions, including negative gearing and capital gains tax in 2023.
The subsequent Parliamentary Budget Office modelling found that capital gains tax discounts and negative gearing were highly skewed, with about 80 per cent of the benefits going to the top 10 per cent of income earners. The modelling also showed that, on current settings, negative gearing and capital gains tax discounts were set to cost the budget $165 billion over 10 years.
Greens Senator Nick McKim, chair of the latest Senate inquiry into capital gains tax, said his party would be open to discussions on tax cuts on the proviso that it was part of a bigger change to asset and property taxes.
“There are intergenerational issues that we need to resolve,” Senator McKim told ABC News Breakfast. “I would say the momentum for change is growing and this is a historic opportunity for this parliament to deliver a tax package that is progressive, that makes Australian society fairer and more equal and is of genuine ambition.”
However, Deputy Liberal leader Jane Hume said they were the party in favour of lower taxes and that changes could stymie the housing market.
“I think the principles are very clear: if you tax something, you get less of it,” Hume told Sky News. “If you tax housing more, you’ll get less housing, not more housing. We want to see more houses built, not fewer, and we want to see more people investing in residential property, not fewer people investing in residential property.”
Eslake said the Opposition was correct in a sense when they say that if you tax investors in existing properties more, by making the capital gains tax discount they get less generous, then you would get less investment in existing housing.
“But that’s actually the point,” Eslake said. “You actually want less investment in existing housing so that it doesn’t go up in price as much as it otherwise would, and so would-be homebuyers face less competition for that existing housing.
“If you want to keep some form of incentive for investment in residential property, then keep it for investors who buy or build new housing, which might have some positive impact on the supply of housing.”
