{"id":576431,"date":"2026-03-31T14:28:08","date_gmt":"2026-03-31T14:28:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/576431\/"},"modified":"2026-03-31T14:28:08","modified_gmt":"2026-03-31T14:28:08","slug":"landlords-leveraging-up-by-exploiting-property-tax-rules-are-fuelling-australias-housing-affordability-crisis-analysis-finds-housing","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/576431\/","title":{"rendered":"Landlords \u2018leveraging up\u2019 by exploiting property tax rules are fuelling Australia\u2019s housing affordability crisis, analysis finds | Housing"},"content":{"rendered":"

The combination of the capital gains tax discount and negative gearing rules has turbocharged debt-fuelled property speculation over recent decades, according to a new analysis of hundreds of thousands of property investments.<\/p>\n

The federal budget in three weeks\u2019 time is widely expected to include changes to tax breaks for investors<\/a>, in an effort to rebalance the tax system away from the wealthiest Australians<\/a> and to take pressure off home prices<\/a>.<\/p>\n

Nick Garvin, an economist at the e61 Institute, said he and his co-author, Matt Nolan, found that the current tax settings have created an \u201cextra artificial incentive\u201d for landlords to borrow as much as possible against their investment properties.<\/p>\n

This had contributed to higher house prices than otherwise would have been the case and played a part in the affordability crisis, he said.<\/p>\n

Of the 900,000 investments in e61\u2019s sample bought after 2007 and sold by mid-2025, 46,000 were economically unprofitable, but made money due to the capital gains tax discount.<\/p>\n

The analysis showed how the tax rules reduced the probability of a property investment being economically unprofitable from 40% to 35% \u2013 a reduction of 5.1 percentage points, or 13%.<\/p>\n

Sign up for the Breaking News Australia email<\/a><\/p>\n

Garvin said the research showed how the current tax rules were \u201ccreating a difference between how the gains of the investment are taxed and how the losses on interest costs are taxed\u201d.<\/p>\n

More highly leveraged investments increase the risk and potential return on any investment.<\/p>\n

But Garvin said the essential issue with property was that landlords were able to write off all of their interest expenses against their incomes, while only paying tax on 50% of capital gains for properties held for longer than a year.<\/p>\n

The differential tax treatment meant net rental losses were more likely to be outweighed by the eventual sales profits.<\/p>\n

The analysis of the hundreds of thousands of transactions showed that the typical tax on returns was 31% for investment properties with no debt.<\/p>\n

This dropped progressively to 18.5% for properties with the highest loan-to-value ratio of 90%, despite receiving substantially higher pre-tax profits.<\/p>\n

In other words, the higher your leverage, the higher your profits, and the lower your tax rate.<\/p>\n

Graph titled \u2018The more you borrow, the lower your tax\u2019<\/a><\/p>\n

\u201cThis wedge between the tax on asset-side gains, and the tax deduction on liability-side losses\u201d had distorted investor behaviour and boosted leverage, the report found.<\/p>\n

An equal tax treatment would only allow half of interest expenses to be deducted against the income, Garvin said.<\/p>\n

\u201cAnd it\u2019s specifically that difference that can be exploited by investors by leveraging up.\u201d<\/p>\n

Garvin said the additional incentive to borrow more had boosted investor demand for housing over the years.<\/p>\n

\u201cThis has almost certainly put upward pressure on housing prices, although gauging how much is difficult,\u201d Garvin said.<\/p>\n

The e61 Institute has backed an inflation-linked discount on capital gains, but Garvin said equal treatment of debt expenses and capital gains would remove this bias towards borrowing larger amounts to invest in property.<\/p>\n

A Greens-led parliamentary inquiry earlier this month found that the 50% discount \u201cskewed the ownership of housing away from owner-occupiers and towards investors\u201d.<\/p>\n

Treasury is modelling changes that could see the discount reduced to 33% for housing investors, while retaining the current rate for shares and other investments.<\/p>\n

There is also speculation that there could be limits imposed on the number of properties a single investor can negatively gear.<\/p>\n

\u201cA lot of the debate around changing the CGT discount rate has been focused on the effect on housing prices, but this channel we are pointing out in our note is potentially the most important one,\u201d Garvin said.<\/p>\n

\u201cWhat we are showing here is that it\u2019s more the design of the discount itself, rather than the rate, that is driving it.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The combination of the capital gains tax discount and negative gearing rules has turbocharged debt-fuelled property speculation over…\n","protected":false},"author":2,"featured_media":576432,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[64,63,44],"class_list":["post-576431","post","type-post","status-publish","format-standard","has-post-thumbnail","category-australia","tag-au","tag-australia","tag-news"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/576431","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=576431"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/576431\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/576432"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=576431"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=576431"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=576431"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}