With a federal election campaign now underway, the debate over negative gearing and the capital gains tax discount has returned to the centre of Australian housing policy. This time, the construction industry has numbers to back up its concern.
Independent economic modelling commissioned by Master Builders Australia, the Housing Industry Association, the Property Council of Australia and the Real Estate Institute of Australia has found that reducing or removing either negative gearing or the CGT discount will reduce the number of new homes built in Australia. In the most severe scenarios, the modelling projects a fall of more than 45,000 dwelling starts over the five-year period to 2029-30.
For builders, the message is straightforward. Less investment in rental property means fewer homes commissioned. Fewer homes commissioned means less work. And in a market already stretched for capacity, a policy-driven contraction in pipeline is not a small problem.
What the Modelling Actually Shows
The report, prepared by Qaive and Tulipwood Economics, modelled nine separate policy scenarios ranging from full removal of negative gearing with minimal grandfathering through to incremental changes to the CGT discount rate. The results were consistent across every scenario: any change reduces dwelling supply, construction employment and GDP relative to a business-as-usual baseline.
The most significant scenario, full removal of negative gearing with only one property per investor grandfathered, projects a reduction of 45,524 dwelling starts over the five-year period. That is a 4.4 per cent contraction in new housing supply compared to what would otherwise have been built. Construction employment falls by an average of 4,288 full-time equivalent jobs per year under this scenario. GDP takes a hit of $3.1 billion in net present value terms.
Removing the CGT discount entirely, under similar grandfathering conditions, projects a reduction of 33,353 dwelling starts. Construction sector jobs fall by around 3,162 FTEs per year on average. GDP impact reaches $2.26 billion.
Even the more moderate scenarios carry real weight. Halving the CGT discount to 25 per cent with full grandfathering is modelled to reduce dwelling starts by 12,032 and cost the construction sector more than 1,100 jobs per year on average.
When both reforms are combined, the impacts compound. A combined scenario that halves the CGT discount and restricts negative gearing to a single property with no grandfathering projects nearly 46,000 fewer dwelling starts and a GDP reduction of over $3.1 billion.
The Rental Market Is Part of the Supply Chain
A central argument in the modelling, and in the industry’s joint statement, is that private rental investment is not separate from housing supply. It is part of it.
Investors finance up to two in every five new homes built in Australia. When those investors face higher tax costs, the financial case for commissioning new construction weakens. Some exit the market. Others reduce their exposure. The cumulative effect is fewer projects getting off the ground.
The modelling also addresses the rental price question directly. In the short term, dwelling prices may fall as the market adjusts to reduced investor demand. But over time, the supply contraction pushes rents upward. Under the most impactful negative gearing scenario, rents are projected to be more than 2 per cent higher in real terms by 2029-30 compared to a business-as-usual baseline.
For renters who cannot currently afford to buy, that outcome is the opposite of what housing affordability policy is meant to achieve.
Where the Industry Stands
The industry associations have been clear that they are not opposed to housing reform as a concept. In their joint statement, they acknowledged the value of the Housing Australia Future Fund, the National Planning Reform Blueprint and the modernisation of the National Construction Code.
What they are pushing back against is reform that treats investor taxation as a separate question from housing supply. Their position is that both sides of the ledger matter. More tax on property investment reduces the financial incentive to build, and at a time when the National Housing Accord has set a target of 1.2 million new homes over five years, the industry cannot afford a policy headwind pulling in the opposite direction.
The modelling was released following a Senate committee report on the CGT discount, which the industry associations say failed to adequately account for housing supply implications. The timing is deliberate. Budget decisions are approaching, and the industry wants the numbers on the table before those decisions are made.
What Builders Need to Understand
For builders operating in the residential space, these are not abstract policy debates. They translate directly into pipeline.
When investor activity contracts, the number of new builds commissioned falls. That plays out across project starts, trades engagement, materials orders and ultimately revenue. Builders who rely on investor-driven work, apartments, townhouses, infill development, are more directly exposed than those focused on owner-occupier detached housing. But the flow-on effects reach further.
The modelling also captures construction output in dollar terms. Under the most significant negative gearing scenario, construction sector output falls by $5.36 billion across the five-year period in net present value terms. That is not evenly distributed. It concentrates in markets and segments where investor activity is already highest.
It is also worth understanding what the modelling does not claim. It is not arguing that the current tax settings are optimal, or that no reform is possible. It is measuring the direction and scale of specific policy changes. Every scenario modelled produces a negative number on dwelling starts. The range is in the severity, not the direction.
The Bigger Picture for the Construction Industry
Australia is attempting to build its way out of a housing shortage. Every serious analyst agrees that supply needs to increase, not decrease. The disagreement is about which mechanisms get it there.
The construction industry’s argument, supported by this modelling, is that investor participation in the rental market is one of those mechanisms. It funds new builds. It maintains rental stock. It provides the financial underpinning for a portion of housing development that public funding alone does not cover.
Changes to CGT and negative gearing do not happen in isolation. They reshape the economics for a class of investors who collectively finance a significant share of new residential construction. The evidence in this modelling suggests that reshaping those economics in the directions being discussed will result in less supply, not more.
Whether policymakers weigh that evidence as decisive is a question for the budget process. But builders and suppliers should understand what is on the table and what the modelled consequences look like if current reform proposals move forward.
The numbers are now public. The decision about what to do with them belongs to Canberra.
0 Comments