Australia’s housing market is being reshaped by policy debates over tax settings such as negative gearing and the capital gains tax (CGT) discount, but HIA Chief Economist Tim Reardon (pictured) warns that focusing on investor taxes before fixing supply could backfire on affordability.
His warning comes as Australian house prices are forecast to climb further in 2026, building on last year’s strong gains as demand continues to outpace supply, with economists pointing to investor activity—supported by favourable tax settings and a surge in lending through 2025—as intensifying competition with owner‑occupiers and keeping more households in the rental market.
In a recent HIA commentary, Reardon said Australia’s housing market is “increasingly defined by a structural imbalance between strong underlying demand and persistently weak supply.”
He said housing is “one of the most heavily taxed items in the economy,” with outcomes shaped by tax settings alongside planning systems, land supply, infrastructure charging and construction costs.
Housing investment plays a central role in Australia’s dwelling supply pipeline, particularly for rental housing and higher‑density development. In the past year, “investors accounted for over 40% of all loans for the construction or purchase of new dwellings,” underscoring their importance to new supply.
Reardon argues that “claims that changes to capital gains tax arrangements introduced in 1999, or the ongoing availability of negative gearing, are a primary cause of rising house prices are misguided.” These arguments, he says, rely too heavily on timing correlations rather than causal evidence.
Over the past two decades, real house prices have increased faster than incomes across most advanced economies, including in jurisdictions with “very different housing tax systems”.
According to HIA, this indicates that “broader structural factors, such as constrained housing supply, population growth and declining global interest rates” are “the dominant drivers of price growth, rather than any single domestic tax change.”
Reardon also warns that international comparisons are frequently misapplied in Australia’s housing tax debate. While negative gearing is sometimes portrayed as uniquely Australian, he notes that “the deductibility of costs incurred in earning rental income is a standard feature of income tax systems internationally.”
Differences between countries typically reflect how housing is taxed as a whole — for example, through capital gains tax on owner‑occupied housing, mortgage interest deductibility for owner‑occupiers, or heavier reliance on recurrent property taxes.
“Selectively adopting individual elements of overseas tax systems without their broader context risks undermining the balance between simplicity, equity and efficiency, and can weaken incentives for housing investment,” Reardon said.
According to the HIA commentary, “economic modelling and historical experience consistently indicate that increasing taxes on housing investors reduces investment in new housing, particularly in supply‑constrained markets.”
While short‑term effects may vary by region and market segment, the longer‑term consequences include “less dwelling construction, reduced rental supply and upward pressure on rents,” especially where alternative finance sources are limited and planning and infrastructure constraints already restrict supply responsiveness.
Reardon also challenges claims that increasing taxes on housing investors in the established market would automatically redirect capital into new housing supply.
For that to be correct, he said “new housing supply must also be a ‘Giffen good’, where demand for an item rises, as the cost of it increases.”
“Taxing investment in established homes will cause a decline in investment in new homes, just as taxing the disposal of used cars would adversely impact the sale of new cars,” Reardon said.
The HIA report stresses that addressing Australia’s housing challenge requires increasing investment “from owner occupiers, investors, and government,” and says this “can only be achieved through lowering the cost of delivering and financing completed homes.”
Improving housing affordability, Reardon concludes, “requires policies that support a sustained expansion in housing supply,” including efficient planning systems, timely land release, coordinated infrastructure provision and “stable taxation and financing settings that encourage long‑term investment.”
HIA's core message for policymakers is blunt: “Governments need to first fix housing supply, not seek to increase tax imposts on housing supply.”
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