Article by Connor Tait 

10 Minute read

Why Changes to the Capital Gains Tax Discount Could Make Australia’s Housing Crisis Worse — Not Better

The conversation around proposed changes to the Capital Gains Tax (CGT) discount is heating up — particularly when it comes to property.

At face value, the argument for reducing the current 50% CGT discount sounds reasonable.

The thinking is this:

If the discount is reduced, it may discourage short-term “flipping” investors — those who purchase property in lower-demand areas, hold for the minimum 12 months to qualify for the discount, and then resell for profit once values rise.

In theory, less speculative investment could mean less competition for first-home buyers, making it easier for them to enter the market.

On paper, that sounds like a positive step.

But when we look deeper at the data — and how property investors actually behave — the reality tells a very different story.

The Reality: Most Investors Aren’t Large-Scale Speculators

According to Australian Taxation Office data, approximately 90% of property investors in Australia are considered “mum and dad” investors.

These are not large institutions or high-volume flippers.

They are everyday Australians — individuals and couples — who typically own one or two investment properties while raising families, working full time, and building long-term financial security.

For many, property is a retirement strategy — not a short-term trade.

What Happens If the CGT Discount Is Reduced?

A key assumption behind reducing the CGT discount is that investors will sell more, freeing up housing stock.

But in practice, the opposite is more likely to occur.

If the financial incentive to sell is reduced, most investors won’t rush to market — they’ll simply hold their assets longer.

And when investors hold:

  • Fewer properties are listed for sale

  • Overall housing supply tightens

  • Buyer choice decreases

  • Competition for available homes increases

This directly undermines the policy’s stated goal of improving affordability.

The Budget Argument — Does It Stack Up?

The government has referenced the cost of the current CGT discount to the federal budget — often cited in the billions.

However, this assumes properties are being sold and gains are being realised.

If investors hold rather than sell, those gains are never triggered — and therefore never taxed.

You cannot collect tax revenue on profits that aren’t realised.

So the expected budget benefit may not fully materialise if transaction volumes decline.

Supply Is the Real Issue

Housing affordability in Australia is fundamentally a supply and demand equation.

And right now, supply is the biggest pressure point.

Australia is already projected to fall significantly short of its national housing construction targets — with forecasts suggesting we could be 260,000 to 280,000 dwellings short of planned supply.

Policies that reduce investor turnover risk tightening supply even further.

Flow-On Effects to the Rental Market

There is also a second-order consequence that cannot be ignored.

If fewer investors sell:

  • More tenants remain in rental accommodation

  • Rental stock turnover slows

  • Vacancy rates tighten

  • Rents increase

This places additional pressure on renters — many of whom are trying to save for their first home.

Higher rents make it even harder to accumulate deposits, prolonging the renting cycle.

Ironically, a policy designed to help first-home buyers could make their path more difficult.

A Policy That Misses the Mark?

While positioned as housing reform, reducing the CGT discount risks penalising the very cohort responsible for supplying a significant portion of Australia’s rental housing.

“Mum and dad” investors — who make up the overwhelming majority — are not the cause of the supply shortage.

They are participants in it.

Discouraging them from transacting may reduce mobility within the market rather than improve access.

 

The Long-Term Solution

If the goal is genuine affordability, the focus must remain on increasing supply:

  • Accelerating new housing construction

  • Unlocking land availability

  • Reducing planning bottlenecks

  • Incentivising development

More homes — not fewer investors — is what ultimately stabilises prices and rents.

Thinking About Your Next Move?

Policy changes like this can have real implications for:

  • Investors considering selling

  • Owners weighing up long-term holds

  • First-home buyers timing their entry

If you’d like tailored advice around your position, strategy, or the local market — we’re here to help.

👉 Click here to get in touch: https://www.taitrealestate.com.au/contact 

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