Labor’s negative gearing, capital gains tax changes to push house prices down 10 per cent, leading expert warns

Australia’s proposed changes to negative gearing and capital gains tax (CGT) could slash property prices by 5-10 percent, according to Morgan Stanley’s chief economist Chris Read. The Labor government plans to limit negative gearing to new home purchases and scrap the 50 percent CGT discount for assets held over 12 months, replacing it with a 30 percent minimum tax rate. The tax reforms, combined with three consecutive interest rate hikes this year, are already affecting the market. Sydney’s auction clearance rate hit a six-year low following Treasurer Jim Chalmers’ budget announcement, signaling reduced investor confidence. Read warned the changes will ‘fundamentally alter’ how Australians invest in property, particularly housing, by challenging the previous model of high leverage and expected capital gains. Investor demand is expected to drop sharply, requiring higher rental yields to compensate. While owner-occupiers and new build investors may increase activity, the overall impact will be a broad weakening in housing conditions. Read noted this slowdown could reinforce the Reserve Bank of Australia’s restrictive monetary policy stance. Dwelling values rose 9.8 percent year-over-year to April, with regional areas seeing a 12 percent increase compared to 9.1 percent in capital cities. However, the proposed tax changes—alongside tighter borrowing conditions—will likely reverse this growth trajectory, contributing to an economic slowdown in the second half of 2026. The primary effect will be lower property prices, though higher rents and a new-build price premium may emerge.