Albanese government targets housing tax breaks in first budget

The Albanese government has unveiled sweeping reforms to housing tax incentives in its first budget, seeking to curb investor advantages and improve affordability for younger Australians. The measures include restricting negative gearing to new residential constructions and replacing the existing capital gains tax discount with an inflation-linked markdown. Crucially, the changes are grandfathered, meaning they apply only to established properties purchased after the budget announcement, thereby protecting the tax positions of existing investors.

Prime Minister Anthony Albanese’s administration argues that the current tax settings have exacerbated intergenerational inequality, with the average property now costing nearly ten times an ordinary household’s income. The government contends that limiting these breaks will reduce investor demand, potentially causing a slight dip in prices and creating more room for first-time buyers and owner-occupiers to enter the market. This policy shift follows a period of significant political volatility, including the backlash against the Prime Minister’s own multi-million-dollar property purchase in 2024, which highlighted a changing public mood regarding wealth and housing access.

The reforms have drawn sharp criticism from the Coalition opposition and property investors, who warn that the changes could stifle investment and exacerbate rental shortages. Christine and Cliff Hill, a retired couple from Melbourne who own three investment properties, described the proposals as a recipe for disaster. They argue that investors may increase rents or sell properties, leading to a temporary supply spike that fails to meet long-term demand, ultimately leaving houses unaffordable for most.

Support for the reforms has emerged from younger demographics, including 13-year-old student Sebastian Muñoz-Najar, who calculated that the average house in Adelaide will be 17 times his likely income by the time he graduates university. Muñoz-Najar and his father launched a petition and website calling for the tax changes, arguing that the social contract has been broken and that houses should be returned to being places to live rather than investment vehicles. Their actions reflect a broader sentiment among millennial and zillennial voters, who now make up a larger share of the electorate.

However, experts caution that tax reforms alone are insufficient to resolve the housing crisis. Danielle Wood, chair of the Productivity Commission, noted that while the changes are symbolic of the issues created over the past two decades, they are not a panacea. Wood emphasised that the government must also address restrictive planning laws and construction regulations, which have slowed build times by approximately 40% over the past 15 years. Without broader structural changes to increase supply, the tax adjustments may have limited impact on the fundamental shortage of homes.