I’m an skilled within the property market – that is how massive a success eliminating the Capital Gains Tax low cost might have on home costs

House prices could drop between one and four per cent as a result of reforms to Australia’s Capital Gains Tax (CGT) discount for property investors, economists said. 

Under the current rules introduced in 1999 by the Howard government, investors currently pay tax on only half the profit they make when selling an investment property held for more than a year. 

But the Albanese government has floated significantly cutting back the tax break in the May Budget. 

Experts say that could shift who buys homes, ease investor competition at the margin and lift home ownership rates, while heightening rental market uncertainty. 

Domain senior economist Dr Joel Bowman said CGT settings are often framed as an affordability lever, but the evidence shows only a muted link to prices since the discount’s introduction in 1999.

‘Research shows the discount has only nudged house prices since it began in 1999,’ he told the Daily Mail.

‘Bigger drivers have been things like falling interest rates, a growing population and ongoing supply shortages.

‘Winding back the CGT discount isn’t likely to send house prices tumbling.’

Dr Bowman said any initial dip could be from 1 to 4 per cent, reflecting a short‑term adjustment rather than a massive structural shift.  

Where it could make a difference is in home ownership. 

‘With less competition from investors, owner-occupiers could find it a bit easier to get a foot on the ladder, potentially lifting home ownership by up to 5 percentage points,’ he said.

‘Depending on the approach, we could see a short-term surge in listings from investors, creating a temporary boost in supply before the market settles again. 

‘But with other tax benefits still in play for investors, the CGT charge alone isn’t likely to have a lasting effect on property’s appeal.’

Cotality head of research Gerard Burg said it was ‘clearly observable’ that following the introduction of the CGT discount, home values increased far more rapidly than incomes.

He said the scale and scope of any change to the CGT on property would set the tone.  

‘The most likely scenario, where the policy change only affects new investors, this would take some of the heat from the demand side of the market,’ he said.

Mr Burg said lower expected after‑tax returns would also prompt portfolio substitution, with some capital rotating from property to equities and other assets. 

But he cautioned supply constraints, not investor settings, remain the primary brake on affordability. 

Strategic Property Group managing director Trent Fleskens warned ‘toying’ with the housing tax regime can spook buyers and investors, citing the 2019 election debate over negative gearing and CGT as a catalyst for a sharp slowdown.

He also pointed to Victoria’s recent tax changes, including higher land taxes and absentee owner surcharges, as an example of how policy shifts can reset valuations. 

‘The market didn’t just wobble, it reset to a new, lower valuation baseline,’ he said, arguing CGT settings were not the cause of price growth; rather, migration, labour constraints and materials inflation did the heavy lifting.

Mr Fleskens cautioned weaker investor incentives could tighten rental supply if the private sector pulls back and government delivery lags, pushing rents higher until yields reach a new normal. 

‘Some will sell on the fear of others selling. Some may not buy based on that same fear,’ he told the Daily Mail. 

‘These tax incentives don’t necessarily create growth. They shape the make‑up of ownership across the market.’ 

Whether investors sell or hold would hinge on whether the measures were grandfathered and the size of the change. 

Mr Burg noted that changes limited to new purchases are less likely to induce pre‑emptive selling.

All three experts emphasised that CGT reform alone won’t fix affordability. 

Dr Bowman said a comprehensive approach is needed to boost supply and improve utilisation of existing stock. 

‘Potential solutions could include replacing inefficient costs like stamp duty with a broad land tax, removing rules that discourage the best use of property like the owner-occupied exemption in the age pension assets test and making smart investments in infrastructure to unlock new land for development.’

The debate comes as new research shows Australians now need to earn around $200,000 a year to comfortably afford a typical house in most capital cities without falling into mortgage stress. 

A Greens-led Senate inquiry will examine the CGT discount over the coming month, with Senator Nick McKim describing it as Australia’s ‘most unfair tax break’. 

Senator McKim said housing is where the damage is most visible with the tax break, as it pushes investor demand into existing homes, drives up prices and crowds out first home buyers.

He said the government’s own data shows the benefits overwhelmingly favour older and wealthier Australians with an eye-watering 54 per cent of the benefit flowing to the top one per cent of income earners with three quarters going to people over 50.

‘In the last year alone, $12.7billion was handed to those already at the top,’ he said.

‘This is not a tax break that supports everyday Australians.

‘It overwhelmingly favours the wealthiest and the oldest, while younger and poorer Australians receive next to nothing.’

The Coalition has indicated it will oppose changes to the CGT. 

‘We are not going to be joining with Jim Chalmers on trying to ping Australians for more money because he can’t stop his spending spree,’ Opposition treasury spokesman Ted O’Brien said.