Jim Chalmers won’t admit it, and investors cry foul, but a downturn in real estate prices and an upturn in new house construction is good news for Australians looking for a home. Greg Jericho says tax changes are doing their job.

In 2021, Australia’s housing crisis reached a milestone: for the first time in the post WWII era, a majority of Australians aged 30–34 did not own their home.

 

It’s working! Tax changes edge 25 years of housing failures into reverse

by Greg Jericho

 

Since then, the situation has further deteriorated. From June 2021 to June 2026, average dwelling prices across the nation rose 35% – well ahead of the 18% increase in private sector wages.

Over that period, median house prices rose 77% in Adelaide, 83% in Brisbane, and 87%  in Perth. For someone in Brisbane, this meant in the space of five years going from needing $630,000 to buy a median-priced house to requiring $1.15m. In June 2021, only in Sydney was the median house price above $1m; now four cities have a median price in seven figures – Sydney, Canberra, Brisbane, and Perth, and Adelaide has reached $985,000. Even apartment prices were not immune to price rises. The median apartment price in Brisbane nearly doubled from $421,300 in 2021 to $830,100 in  2026.  

But the housing crisis did not start in 2021; its origins are the decision in 1999 by the  Howard government to provide a 50% discount on capital gains tax (CGT). Combined with negative gearing, this set fire to the housing market, led to increased wealth inequality, and made home ownership unattainable for many Australians.

After 25 years of damage, and policies that avoided tackling the core issue, the government’s changes to CGT and negative gearing finally give Australians 

hope that housing can become affordable again.

The policy solution

In the May 2026 Budget, the Albanese government ended the more than 25 years of distortion in the tax system by replacing the 50% CGT discount with a discount based on inflation and introduced a minimum 30% tax on gains from 1 July 2027.

Crucially, the 50% discount and negative gearing remained in place for investors of newly constructed housing.

These changes had the impact of encouraging new housing construction while no  longer providing investors with an advantage over home buyers for established homes.

The changes in the budget were met with some rather over-the-top criticism. One  economist in the AFR wrote, “The idea that house prices in Australia exploded because  of the CGT discount is wrong, intellectually lazy, and a classic example of the post hoc  ergo propter hoc fallacy.” However, it did not take long for reports of price falls to be reported.

By early June, property analytics firm Cotality reported auction rates had fallen to the lowest levels for six years. By October, reports were of price falls of up to 5% from the March peak, and economists from a range of institutions have suggested

house prices may fall up to 10% to 15%.

The naysayers proven wrong

The ongoing evidence of falling house prices since the budget provoked a sharp about-turn from those who had suggested either the removal of the discount would have no impact or would even raise prices. The same economist who thought people were engaging in a ‘post hoc ergo propter hoc fallacy’ was now quoted saying “it was ‘hard to draw any other conclusion’ that changes to the CGT, negative gearing and discretionary trust rules had contributed to the decline in house prices”.

Meanwhile, the Liberal Party, which had suggested it was “simple economics” that the abolition of the CGT discount would “push housing prices up”, was now arguing in parliament that “Labor’s toxic taxes have tanked the housing market” because “The  ANZ bank today reports Sydney house prices could fall by almost 15 per cent, the worst crash in more than four decades”.

Despite the fact that for 25 years defenders of the Howard/Costello CGT changes argued that tax changes were not the cause of surging house prices, critics of the changes now argue that the removal of those same tax concessions could drive a major reduction in house prices.

However, while those against the removal of the CGT discount have switched to sowing fear of a housing collapse, the prediction of price falls only highlighted how large the crisis had become. Even a 10% fall across the nation in dwelling prices would only take the value of housing in terms of average annual household disposable income back to  2021 levels.

This does not suggest the policy has failed to improve housing affordability – indeed, a 10% fall in prices would be among the biggest improvements in affordability in the past 50 years. Merely, it demonstrates that undoing 25 years of damage (if that is even possible)

will take a considerable length of time.

New housing construction

A key aspect of the changes to the CGT discount and negative gearing was the decision to keep both settings for new housing builds. This was intended to encourage investors to shift from established housing to new construction.  

We have two sets of data that demonstrate the policy has had an immediate positive  impact.  

The ABS Lending Indicators survey for the June 2026 quarter revealed a record 8,468  investor loans for the construction of dwellings – up 4.4% on the March quarter and 

20.3% higher than the year before. 

In the same quarter, investor loans for established dwellings fell 14% and were flat over the year. Usually, the growth of investor loans for  construction and for established houses follows the same trajectory.

That investor loans for construction are growing so strongly at a time loans for established houses are falling suggests the policy is having a significant impact.

The ABS Building Activity survey also demonstrates the success of the policy. In the June quarter, 31,707 new houses commenced construction. This was an 11.6% increase on the March quarter and the

biggest number of commencements in the past 30 years,

outside of the period of the COVID stimulus HomeBuilder, and the pre-GST rush in March 2000.

Hope for young home buyers

For 25 years, Australian housing policy appeared locked into an irrevocable bind – all attempts to improve affordability were hamstrung by the operation of the 50% CGT discount combined with negative gearing.

Despite the efforts of policies designed to improve affordability – such as first-home buyer grants – prices inevitably kept rising such that in the 25 years since the introduction of the CGT discount, dwelling prices had risen more than twice as fast as household incomes.

The May budget policy of restricting the 50% CGT discount and negative gearing to new housing builds has had an immediate impact towards achieving it two major aims. House prices have fallen to the point that housing affordability is now forecast to improve by the biggest amount in 50 years.

The fall in house prices, despite what vested interests might suggest, has not destroyed the housing market. Values  remain high, and the falls have mostly just restored some necessary balance after the  surge of prices since 2020.

The rise in construction, both by investors and homeowners, also demonstrates that the policy has helped to increase housing supply. No longer do investors gain a tax benefit from buying established homes.

The tax system now actively encourages new construction and thus increases housing supply.

After decades of avoiding the obvious problem of housing in Australia, the May budget changes to the CGT discount and negative gearing have demonstrated that strong policy that attacks the heart of a policy problem can have an immediate impact.

https://michaelwest.com.au/its-working-tax-changes-edge-25-years-of-housing-failures-into-reverse/

 

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