Younger generations are now the largest voting bloc, and the government is finally ready to pare back the tax concessions that have made property a speculative asset. As Treasurer Jim Chalmers pledges to tackle generational inequity in his fifth budget, one state is already feeling the impact of reduced property investor incentives: Victoria is a rare bright spot for struggling home buyers.
While rising interest rates are beginning to crimp demand nationally – with the Reserve Bank of Australia delivering its third hike this year on Tuesday – the effects of variable housing policies across the country are emerging. Home prices in Victoria rose just 2 per cent in the two-and-a-half years since property tax changes were announced in May 2023, compared with 17 per cent nationally. Once near Sydney in terms of median property values, Melbourne is now cheaper than Perth, Adelaide, Canberra and Brisbane, where prices are nearly $300,000 higher.
That difference is due in part to Melbourne’s abundance of inner-city apartment developments, but recent policy reforms have widened the gap. A reduction in the land tax-free threshold on investment properties (from $300,000 to $50,000), and increased taxes on vacant properties — and land that remains undeveloped for more than five years — has correlated with an exodus of landlords from Victoria. Active residential bonds markedly declined after the land tax changes were announced, indicating an investor sell-off to owner-occupiers and first-home buyers, The Australia Institute says.
While federal negative gearing and capital gains tax (CGT) concessions have long animated investors to outbid owner-occupiers (and inflate prices), that is less the case in Victoria, where relatively strong tenant protections have also made speculation less attractive.
“What we’ve seen in Victoria is that not only have housing prices increased at a lower rate to other states, we’re seeing more first-home buyers enter the market and be successful,” says Liam Davies, a lecturer in sustainability and urban planning at RMIT.
Meanwhile, investor-friendly markets like Perth are still experiencing 20 per cent yearly housing price growth.
While limited housing supply is a factor in overheated markets in Western Australia or Queensland, Davies and experts at The Australia Institute argue that tax concession-primed investor demand remains the primary cause of housing inflation in Australia.
“At the moment we have a tax system that gives away tens of billions of dollars every year to encourage investors into the market,” said Matt Grudnoff, senior economist at The Australia Institute.
The property industry, by contrast, claims that rollbacks in tax incentives have reduced investment in rental properties, leading to constraints on supply and higher rents.
Nerida Conisbee, the chief economist at real estate group Ray White, says that about 90 per cent of rental properties in Australia are provided by investors. Tax changes in Victoria implemented in early 2024 to help pay down the debt accrued during the pandemic and a major infrastructure build have “restricted housing supply” and have caused renters to “absorb the cost as opposed to owners”, Conisbee says.
Yet rents in Victoria are also rising more slowly than in every other state, making it the cheapest rental market in the country, according to a survey from the REA Group .
“This has not really had any effect on vacancies or rents at all,” says Davies of the changes to property tax, noting that vacancy rates have remained steady at about 2 per cent.
While Conisbee agrees that tax concessions have “no doubt made property investing more attractive”, she is concerned that as “mum and dad investors” leave the market, more institutional investors will step in and out-compete first-home buyers.
“People try to make it simple and say every renter will become a buyer and we’ll solve this problem, but there are a lot of ramifications,” she says of the tax concession reforms.
“If you don’t have investors in there, who’s going to be providing rental properties that are required? I don’t think anyone has come up with a realistic solution.”
Davies counters that owner-occupiers and first-time buyers who face less competition from investors are more able to purchase homes, which frees up rental properties. This has allowed a rental supply “equilibrium” to be maintained, he says.
Davies believes that housing affordability cannot be addressed if property remains an asset that is taxed less than other investments – primarily due to the federal CGT discount of 50 per cent but also to negative gearing benefits that help investors reduce costs on low-yielding rental properties before receiving a later windfall.
“This means that landlords aren’t focused on providing housing, they are focused on sitting on an appreciating asset,” he says. Meanwhile, owner-occupiers who plan to stay in their home benefit less from the tax concessions.
“What we should be doing is taking that advantage away from investors and giving it to home owners,” says Matt Grudnoff.
The economist does not agree with the property industry that there will be an impact on supply, noting that Melbourne has been building properties at a “faster rate than the rest of the country” – a point Conisbee also concedes, explaining that building on greenfield sites on the outskirts has boomed as planning legislation has been relaxed.
Housing advocates are calling for nationwide reforms to replicate Victoria’s success with investment disincentives, including a rollback of the 50 per cent CGT discount introduced in 1999 by the Howard government. That reform streamlined a variable discount that subtracted annual Consumer Price Index inflation from the property price gain, and became entrenched as a sacred cow of conservative federal politics.
A Senate inquiry in March found that the discount and negative gearing “skewed the ownership of housing away from owner-occupiers and towards investors” and that concession benefits are “unequally distributed”. The Australia Institute released YouGov polling showing broad support for a wind-back of the tax benefits – including among Liberal Party and One Nation voters.
It showed that 63 per cent of independents and 59 per cent of Labor voters believe tax concessions for property investors should be reduced. Only 28 per cent of respondents disagreed.
“People have woken up,” says Grudnoff, adding that the political winds have changed since 2019, when a Bill Shorten-led Labor opposition lost the federal election after it spruiked plans to restrict negative gearing to new properties and slash the CGT discount from 50 per cent to 25 per cent.
“For a long time, people weren’t happy to see house prices remain flat or even fall, but I think the politics of that has completely changed,” says Grudnoff, referring to younger generations that could be “permanently shut out” of the property market.
The calls to dismantle the concession are getting through to federal Labor, as Chalmers has called out “intergenerational unfairness in the tax system and in the housing market”.
https://www.youtube.com/watch?v=2WDQYMf0Dj4
This week The Australian Financial Review reported that Tuesday’s budget would see the CGT discount scrapped. It can still apply to gains recorded up until the tax change takes effect, but all subsequent appreciation will be subject to the prior indexation model.
The only exception is expected to be for new build investments, in the hopes of incentivising supply. Of all nationwide investor loans in 2025, 82 per cent were for established dwellings, not new builds, according to the Australian Bureau of Statistics.
These remaining tax concessions may provide a building stimulus to complement the objectives of the Housing Accord, to build 1.2 million homes nationally – a target the Treasury warned in internal documents last year would not be met. Also underperforming expectations so far is the Housing Australia Future Fund (HAFF), the $10 billion federal investment initiative established to deliver 40,000 new social and affordable homes over five years from 2024.
Davies says federal Labor’s existing housing policy is more than the country has seen “in a long time”, but it will not substantially address the affordability crisis. Nor has its 5 per cent deposit scheme to assist first-home buyers, which he says is “mildly inflationary”.
Despite the improvements of recent years, Melbourne still has one of the largest property price-to-income ratios in the world, with some nine years’ salary required to buy the average home.
“Demand for investor properties needs to be reduced,” says Kate Shaw, a housing expert at the University of Melbourne. “But demand for low-income housing also needs to addressed, and the only way to do this is for the government to build more public housing. So far, the real and proposed government initiatives to increase housing affordability remain too little, too late,” she says.
Meanwhile, the federal Liberal Party, with the property industry, continues to warn against investor tax concession rollbacks, saying “you cannot tax your way out of a supply shortage”.
Davies insists that supply is no guarantee of “stable, secure, affordable housing”.
“Bringing in new supply may not bring the price down if investors are just pumping them up by speculating they will be worth more in the future.”
This article was first published in the print edition of The Saturday Paper on
May 9, 2026 as “Speculator fictions”.
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