Angus Taylor says changes to negative gearing and the capital gains tax discount have put housing into “freefall,” blaming Labor’s “toxic taxes” for “a collapse in the housing market.” His comments followed news that house prices have fallen across most of the nation since May and ANZ forecasts that Sydney prices could drop by up to 14.5 per cent by the end of next year. In question time, the opposition leader lamented “the worst crash in more than four decades.”
Taylor’s claim that reining in tax breaks for property investors has crashed real estate values flies in the face of the long-held Coalition view that negative gearing and the capital gains tax discount had little effect on prices. In 2022, for example, a Coalition-dominated parliamentary committee chaired by then Liberal MP Jason Falinski concluded that “reducing these concessions would only have a small, once-off effect on housing prices.”
Independent modelling by the Grattan Institute backed this assessment. Grattan found that curbing negative gearing and reducing the capital gains tax discount might cause property prices to fall “by about 2 per cent,” an effect it described as “minuscule” after decades of escalating prices.
So, either the Coalition and Grattan were wrong then, and negative gearing the capital gains tax discount were relentlessly driving up house prices, or Taylor is wrong now, and high interest rates have a bigger effect than tax changes in bringing down prices.
Either way, we shouldn’t worry. As economist Saul Eslake says, price falls could continue for two years at the steeper end of forecasts and still leave the vast majority of property owners ahead, and in most cases substantially ahead, of whatever their property initially cost them.
Both major parties say the aim of policy should be to make housing more affordable. If this is true, then price falls are cause for celebration rather than something to panic about, regardless of whether they are driven by tax changes, high interest rates or both.
The Coalition was not alone in asserting that generous investor tax concessions didn’t inflate house prices. Labor ran the same argument for six years — from its 2019 election loss until its change of heart on housing-related taxes at the 2026 budget. So did the property industry, and the orthodox view was — indeed is — that prices are driven up by a lack of supply, rather than by excessive investor demand fuelled by tax breaks.
The corollary is that we need to build, build, build to fix our housing woes. In a major interview in 2025, Housing Minister Clare O’Neil declared that “a ridiculous thicket of red tape” had made it “uneconomic” to build homes in Australia. She vowed to overhaul regulations and turbocharge housing.
At the National Press Club last week, Liberal senator Andrew Bragg made a similar case, saying regulation, corruption and high taxes made home building “uneconomic.” Bragg promised the Coalition would unleash “a housing boom” by bringing down the high cost of construction.
Clare O’Neil may have described Bragg’s speech as a “manic ideological fever dream,” and the Coalition and Labor may be at odds over tax settings, but the rival parties agree on their core policy prescription — liberate private developers to build more dwellings. The fix for Australia’s dysfunctional housing system, they say, is a more efficient market.
Spooked by the rise of One Nation, both the major parties also want to cut immigration to reduce demand for housing. Their disagreements lie in extent not intent.
But there are good reasons to be sceptical of a market-based fix for housing and to query assessments that Australia suffers only from a lack of supply rather than a problem of distribution too. And equally good reasons to believe that any market-based reforms must be accompanied by a large, sustained increase in public investment in homes for low-income households.
Let’s set those concerns aside, though, and imagine for a moment that the major parties’ policies are implemented: zoning and planning are (further) deregulated, the building code is simplified, more skilled tradies are employed, more homes are prefabricated, the construction industry becomes more efficient, and migration falls sharply. Let’s imagine too, that this combination of policies produces the desired outcome, turbocharging housing and unleashing a boom.
What would be the effect on prices? According to the dominant thesis, housing supply would outstrip demand, and house prices would fall, much as they are now. In other words, we’d be wringing our hands about a property downturn. Angus Taylor might well label it the worst “crash” in four decades.
A true housing crash is to be avoided: the havoc wreaked on the housing industry in in the United States, Ireland and Spain during the global financial crisis had terrible consequences. But for prices to fall relatively moderately as they are now and then stagnate for years into the future — that is an outcome truly to be desired. Unfortunately, once interest rates are cut, we may well see house prices climb again.
The only way to make housing more affordable is to make housing cheaper and stop prices rising, enabling household incomes to catch up with property values. Those of us lucky enough to own our homes may be unsettled as their value flatlines, but Australia will be better off as a nation. •
