Chalmers was spruiking major tax changes in his budget to address housing unaffordability which his government identifies as a cause of serious intergenerational inequity.<\/p>\n
The thrust of his strategy is to remove two tax concessions that he believes favour investor landlords to the detriment of first home buyers. The first is negative gearing \u2013 the ability to offset property losses against other income \u2013 and the second is the 50% discount on gains currently allowed when calculating capital gains tax.<\/p>\n
For good measure the Treasurer also wants to introduce a minimum 30% tax rate on capital gains. \u00a0<\/p>\n
The proposed reforms are subject to certain exceptions for residential property already owned and future acquisitions of new housing. Nevertheless, if enacted, the reforms will represent a dramatic change to the economics of investing in the housing sector.<\/p>\n
Just how dramatic is highlighted in a comprehensive analysis by the research team at Morgan Stanley Australia. It expects house prices to fall between 5 and 10%. That would constitute \u2018one of the largest price corrections over the past 40 years\u2019.<\/p>\n
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Source: Morgan Stanley Australia<\/p>\n
SQM Research is forecasting<\/a> falls of up to 9% in Sydney and 7% in Melbourne because those are the markets most exposed to investors.<\/p>\n But not all commentators are that pessimistic.<\/p>\n Westpac expects<\/a> investor activity in the residential market to fall by 34% in the near-term and for total housing market turnover to decline 20% \u2013 not a great outcome for real estate agents and lenders to investors.<\/p>\n However, the bank forecasts house price growth \u2018to stall flat on average across the major capital cities\u2019 rather than turn negative. Different markets will have different outcomes with Westpac seeing falls of 3 to 4% in Sydney and Melbourne in 2026 but rises in Perth and Brisbane.<\/p>\n Significantly, Morgan Stanley estimates that \u2018a 15-20% decline would be required to fully restore investor economics\u2019 to the position pre-Budget i.e. to make investing in residential rental property as attractive as it was previously.<\/p>\n No leading market commentator is predicting house price falls of that severity. Therefore, if Morgan Stanley is correct, the golden days of investing in rental housing in Australia are over.<\/p>\n It\u2019s the end of what Morgan Stanley calls a 30-year housing \u2018super cycle\u2019.<\/p>\n This is momentous given that for decades residential rental property has been a long-term source of wealth creation for many Australians. According to 2025 figures<\/a> from Property Update, more than 2.2 million homes, roughly 22%, are owned by investors.<\/p>\n And it\u2019s not just the budget changes that are weighing on Australian house prices. A challenging environment had emerged before the budget thanks to rising interest rates, rising inflation, and economic uncertainty attributable to the Iran crisis.<\/p>\n The Reserve Bank of Australia has increased the cash rate by 0.25% on three occasions in 2026, most recently the week before the budget. That has quickly flowed through to higher bank lending rates which in turn has reduced the borrowing capacity of most borrowers.<\/p>\n Until recently at least one further RBA rate hike was anticipated in the short term. However, that risk has lessened over the last fortnight due to a drop in the Consumer Price Index<\/a> from 4.6% to 4.2% and a rise in the unemployment rate<\/a> from 4.3% to 4.5%. \u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n But that interest rate reprieve is only expected to be temporary, and it will do little to assuage the general sense of gloom permeating the housing market and the wider economy.<\/p>\n According to some commentary in the Australian press, the latest budget may have implications for New Zealand. Faced with higher taxes on residential property investment at home, the suggestion is that some Aussie investors might look offshore to jurisdictions with less onerous tax rules.<\/p>\n Jurisdictions like New Zealand \u2013 a capital gains tax-free zone.\u00a0 \u00a0\u00a0\u00a0<\/p>\n