The Housing Industry Association (HIA) has urged the Australian Government to rule out any changes to negative gearing and capital gains tax in its 2026 tax review, warning that further tax instability would undermine new home construction and worsen Australia’s housing shortage.
The call comes as housing supply remains well below what is required to meet population growth, with commencements lagging demand across most states and rental vacancy rates sitting at historic lows.
Releasing HIA’s new report, Taxation of Housing and its Impact on Supply, on Tuesday, 27 January 2026, HIA Chief Economist Tim Reardon said governments risk misdiagnosing the housing affordability problem by focusing on tax settings rather than supply.
“You don’t fix a housing shortage by taxing housing harder,” Mr Reardon said.
“And you certainly don’t make homes more affordable by destabilising the tax settings that support new home construction.”
Housing already among the most heavily taxed sectors
According to the report, housing is already one of the most heavily taxed sectors in the Australian economy, with government charges applied at virtually every stage of the housing lifecycle.
These include taxes and levies on land acquisition, development approvals, infrastructure contributions, construction inputs, transactions and ongoing ownership. Crucially, many of these costs fall disproportionately on new housing rather than existing stock.
The report argues that these taxes directly inflate the cost of delivering new homes and reduce the feasibility of projects, particularly medium- and higher-density developments that are critical to addressing supply shortages in urban areas.
Mr Reardon said the cumulative effect of these imposts has been underestimated in public debate.
“The political reflex has been the same for decades,” he said.
“First it was to blame investors. Then foreigners. Then foreign investors. Meanwhile governments quietly add more taxes, more charges and more costs to housing, and wonder why supply keeps falling short.”
Investors play a central role in housing delivery
One of the central findings of the HIA report is the role investors play in housing supply, particularly in funding new construction.
HIA analysis shows that investors initiate more than 40 per cent of new homes built in Australia. The share is even higher in apartment construction and purpose-built rental housing, where pre-sales and investor demand are often essential for projects to proceed.
“When you discourage investors, you don’t free up housing, you stop it being built,” Mr Reardon said.
“Investors don’t neatly switch from established homes into new construction when taxes rise. They leave the housing market altogether.”
This point challenges a common assumption in policy debates that changes to negative gearing or capital gains tax would redirect investment from existing dwellings into new housing. According to HIA, historical evidence suggests the opposite occurs, with overall investment falling and new supply declining.
Supply, not tax tinkering, drives affordability
The report also pushes back against claims that changes to investor tax settings would materially improve affordability for first home buyers.
While housing prices are influenced by demand factors such as interest rates and population growth, HIA argues that sustained affordability can only be improved by increasing the number of homes built.
“New homes don’t exist in isolation,” Mr Reardon said.
“They become established homes. Taxing established housing more heavily reduces the value of new housing as well, which makes fewer projects stack up.”
In practical terms, the report warns that policy uncertainty around taxation can delay or cancel projects as developers, builders and investors reassess risk. This is particularly acute in a construction environment already grappling with elevated costs, labour shortages and tighter finance conditions.
A fragile construction pipeline
The timing of HIA’s warning is significant. National dwelling commencements have fallen sharply from pandemic-era highs, and industry forecasts suggest activity will remain subdued over the near term despite strong underlying demand.
Builders report that many projects, particularly apartment developments, are failing to reach financial close due to feasibility pressures. Higher interest rates, construction cost inflation and planning delays have already thinned the pipeline.
Against this backdrop, HIA argues that further uncertainty around tax policy would add another layer of risk at precisely the wrong time.
“If governments are serious about increasing housing supply, the first step is simple,” Mr Reardon said.
“Commit to tax system stability for residential investment, rule out changes to negative gearing and capital gains tax, and stop layering new taxes onto new housing construction.”
Housing as essential infrastructure
A broader theme of the report is the need to reframe how housing is treated in public policy.
Rather than viewing housing as a convenient revenue base, HIA argues governments should approach it as essential economic and social infrastructure, on par with transport, energy and water systems.
“More homes will only be built if governments stop treating housing as a revenue base and start treating it as essential infrastructure,” Mr Reardon said.
This framing aligns with growing calls from across the construction sector for a more coordinated national approach to housing supply, encompassing planning reform, infrastructure delivery, workforce development and taxation stability.
A test for the federal tax review
The Australian Government’s upcoming tax review is expected to examine a wide range of structural issues, including equity, efficiency and long-term revenue sustainability.
Housing taxation has historically been politically sensitive, with previous proposals to alter negative gearing and capital gains tax attracting strong debate.
HIA’s position is clear: any moves that introduce uncertainty or reduce investor confidence risk exacerbating the very affordability problems governments are seeking to solve.
With housing supply already under pressure, the industry is watching closely to see whether policymakers prioritise stability and feasibility, or reopen debates that could further constrain construction.
For builders, developers and suppliers on the ground, the message from HIA is blunt but consistent: without certainty, fewer homes will be built, regardless of demand.
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