Critics of the government’s upcoming property tax reforms warn that the changes to negative gearing and capital gains tax could inadvertently worsen the rental crisis by discouraging new investment in the housing sector. By limiting the ability of investors to offset rental property losses against other income, the policy may reduce the incentive for individuals to provide rental housing, potentially leading to a further contraction in supply. In a market already struggling with record-low vacancy rates and a significant housing deficit, any move that deters investment could exacerbate the very affordability issues it seeks to solve. Buyers' agents and industry analysts point out that these rules disproportionately affect new investors, while established investors with profitable portfolios may remain largely insulated.
There is also concern that the uncertainty surrounding these reforms is already causing market instability, as investors adjust their strategies months before the changes take effect in 2027. This pre-emptive behavior, including the potential sale of rental properties or a shift toward short-term leasing, is contributing to the current acceleration in rents in several capital cities. Instead of creating a more equitable market, the reforms risk entrenching the position of existing property owners while making it harder for new entrants to gain a foothold. The focus on tax reform, critics argue, ignores the more fundamental issue of supply-side constraints, such as the pressures on the construction industry and the failure to meet housing targets.
Rather than relying on tax changes that may have unintended negative impacts, experts suggest that the government should prioritize comprehensive, supply-focused interventions. This includes streamlining the construction process, investing in infrastructure, and increasing the stock of social and public housing. Without a robust plan to boost the number of available homes, tinkering with tax settings may only serve to shift the burden of the housing crisis onto the most vulnerable tenants, who are already facing unprecedented financial pressure in an increasingly competitive rental market.