Labor’s tax changes won't fix housing affordability – here's the graph to prove it
Sluggish wages mean housing is still out of reach for many buyers
Editor’s note: We’re excited to publish this first contribution from Jim Malo – former property reporter for The Age.
Housing affordability is unlikely to meaningfully improve under Labor’s proposed reforms, experts say, even if forecast price falls eventuate.
A key reason is the wide gap between the cost of housing and what people can actually afford to pay. Sluggish wage growth has forced would-be homebuyers to save longer to get a deposit, and Labor’s proposed changes to negative gearing and the capital gains tax (CGT) will do little to reduce the gap.
Cotality modelling showed house prices were 52.94 per cent more expensive than would be considered affordable, as of the end of 2025. Australia’s median home value was about $902,000, whereas a buyer with a 20 per cent deposit and a median household income of $106,900 could only afford a home worth about $590,000 – or what Cotality calls the ‘derived purchase value’.
Home prices expected to soften
The Albanese government’s proposed changes, announced in in the May budget, would immediately restrict negative gearing to newly built homes and would replace a 50 per cent CGT discount with a 30 per cent minimum tax from July 1, 2027.
Labor predicted home prices would grow 2 per cent less than they would otherwise over about two years thanks to the tax reforms, but AMP chief economist Dr Shane Oliver says the the government may have undersold the potential price effect.
“The logic here is that after the tax reform, investors will participate less in the property market, so the flow of money into property from investors will be less than it has been,” he told Deepcut.
“It could be about a 5 per cent fall. Some people will expect it to happen over five-to-10 years but I think it could happen over the next six-to-12 months.
“Because of the [RBA] rate hikes, we’ve revised our forecast down to 3 per cent growth [over 2026]. But if you get 5 per cent less growth because of the tax changes it could go back to -2 per cent.”
Affordability still out of reach
Affordability took a dive in 2022 when the RBA began lifting the cash rate from a record low to 4.35 per cent. The increased cost of paying down interest, together with rigid debt-to-income limits imposed by lenders and high deposit hurdles, lowered what the median buyer could afford to pay.
Five per cent deposit schemes – introduced federally by the Morrison government in 2020 – do little to improve these conditions because buyers are still restricted by the debt-to-income ratio cap of six. The cap, set by the Australian Prudential Regulation Authority, means that buyers earning $100,000 would find it difficult to be loaned more than $600,000 – nowhere near enough to buy the median home.
Cotality research director Tim Lawless said this showed that a small adjustment to prices wouldn’t be enough to dent the housing crisis.
He says the divergence in housing values and affordability “was partially due to a monetary policy shock driven by increasing interest rates, along with housing values rising at a faster rate than incomes”.
“The probability that a tax change can completely offset that is low. If the cash rate rises once more, borrowing capacity reduces further, and home loan affordability worsens regardless of what’s happening with negative gearing or CGT settings,” he told Deepcut.
The Victorian example
Independent housing analyst Eliza Owen said the expected reduction in investor activity should improve first home buyers’ access to the property market, by way of reducing competition.
“Historic reductions in investor finance and benefits have been associated with periods of price decline, whether it was macro-prudential policy in the 2010s or more recent tax reforms in Victoria,” she said.
“It comes back to that idea that the property doesn’t disappear and the houses don’t go anywhere. If there is an investor who pulls out of the market, they sell to an investor or an owner occupier and in Victoria, even though investor lending has shrunk, it has been more than outpaced by an increase in first-home buyer activity.”
Victoria expanded landlords’ land tax liability in 2023 to help pay down the state’s Covid-era debt. Landlords and real estate agents cited the increase – generally in the ballpark of a few thousand dollars – along with increased protections for renters as their reasons for selling in the following years. Economists also considered it a contributing factor in Melbourne’s years-long housing price stagnation.
Tinkering without drastic change
Lawless said investor activity was likely to stabilise at lower levels, but not enough to trigger price falls large enough to close the gap between what buyers can afford to pay and what homes cost.
“Investors currently represent a significant share of overall housing demand, accounting for 41 per cent of new mortgages taken out in the first quarter of the year. While we anticipate investor demand will soften, it is unlikely to disappear altogether,” he said.
“Simultaneously, existing investors are fully protected under grandfathering provisions for negative gearing, meaning there is little incentive for them to sell their properties. Rather than triggering a wave of panic selling, the change is more likely to encourage existing investors to hold their properties for longer to preserve their tax advantages.”
Listen to the latest episode of Deepthink, where Antoun Issa discusses his new book, Rebirth: A Love Story from the Depths of War, with Readings Books. The wide-ranging conversation delves into Beirut’s history, enduring Arab resistance, and interpreting Kahlil Gibran and the purpose of life.
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