As we approach the Federal Budget this May, the air in the property world is thick with speculation. It’s that time of year when “Capital Gains Tax (CGT)” and “Negative Gearing” become the most talked-about phrases at dinner parties—usually accompanied by a fair amount of anxiety.
At Holdsworth Real Estate, we believe that sound property decisions are built on clarity, not rumors. However, the current proposals being floated by the Federal Government have many of our clients asking: Who actually wins here? Let’s pull back the curtain on the proposed changes and look at the real-world implications for the Perth market, our investors, and—most importantly—our tenants.
The CGT Discount: A “Solution” in Search of a Problem?
The government is reportedly weighing up a reduction in the 50% Capital Gains Tax discount. The intention is clear: discourage speculation and make housing more “affordable” for first-time buyers. But the math doesn’t quite hold up.
Reports suggest that even a significant reduction in the discount might only lead to a 1% drop in house prices. For a buyer in Perth looking at a median-priced home of $880,000, that’s a “saving” of $8,800. In a market where houses are selling in under 10 days, that tiny price shift is unlikely to be the game-changer buyers are hoping for.
The Supply Trap: There is a theory that reducing the CGT discount will prompt a surge of investors to sell, thereby increasing supply. In the Perth context, this is a bit of a mirage. Demand here is so incredibly high that any “short-term surge” of investor stock would be absorbed by the market almost instantly. Once that initial wave is gone, we aren’t left with more houses; we’re just left with fewer rental properties and a building industry with even less incentive to start new projects.
Negative Gearing: Targeting the “Big” Investors
Another proposal on the table is the restriction of negative gearing to those owning fewer than three investment properties.
On the surface, this sounds like it targets “property moguls.” But the ATO data tells a different story. Only about 4% of Australian investors (roughly 97,300 people) own three or more negatively geared properties.
The Unintended Consequences: If these investors decide to sell down their portfolios to stay under the threshold, we see two immediate negative effects:
- Rental Stock Evaporates: For every property an investor sells to a homebuyer, one rental home disappears from the market.
- Competition for First Home Buyers: Investors who are blocked from larger portfolios will likely pivot their strategy toward lower-priced suburbs where they can achieve neutral or positive gearing. These are the exact same suburbs where first home buyers are trying to get their foot in the door. Instead of helping, this policy could accidentally put investors and first-home buyers in a head-to-head bidding war.
The Human Cost: Tenants in the Crosshairs
At Holdsworth, our biggest concern is the rental market. Perth is already navigating historically low vacancy rates. If the legislative environment becomes hostile toward investment, the “mass exodus” of landlords we saw during the pandemic could repeat itself.
When rental supply declines, rent prices inevitably go up. If an investor doesn’t sell, they are likely to raise rents to cover the loss of tax benefits. In either scenario, the tenant pays the price. At a time when we should be encouraging more people to provide housing, these policies seem to be doing the opposite.
The $3.1 Billion Warning: What the Data Says
It isn’t just “real estate talk.” Independent modelling by Qaive and Tulipwood Economics has painted a stark picture of what happens when you tax housing more heavily. Their research shows that removing negative gearing or halving the CGT discount would lead to:
- A $3.1 Billion hit to the GDP.
- A reduction of 45,500 new housing starts over the next five years.
- The loss of 4,250 construction jobs annually.
- Rents rising by 2% more per year than they otherwise would.
When the stated goal of the National Housing Accord is to build more homes, a policy that results in 45,000 fewer starts feels like a step in the wrong direction.
The Holdsworth Take: Focus on Supply, Not Tax
The intentions behind these proposals—to help people into homes—are noble. However, the Perth market is a unique beast. We don’t have a “tax” problem; we have a supply problem.
Expert Opinion: Reducing the appetite for property investment doesn’t build new houses. It just reshuffles the existing ones while making the rental experience more expensive and difficult for those who can least afford it.
Now is the time to focus on policies that streamline the building process, reduce developer costs, and incentivize the creation of new dwellings.
What should you do? If you are an investor concerned about your portfolio, or a buyer trying to time the market, don’t panic. Policy debates are often noisier than the actual results. The best strategy is to stay informed and ensure your current investments are performing at their peak.
Looking for a strategy session? At Holdsworth Real Estate, we keep our finger on the pulse of both local Perth trends and Federal policy shifts. If you want to discuss how these potential budget changes might affect your property goals, we are here to help.
Give us a call today, and let’s make sure you’re prepared for whatever May brings.
