Negative Gearing Changes: What It Really Means for Investors and the Housing Market
8 Aug 2025
The debate around negative gearing and the capital gains tax (CGT) discount is one of the most persistent and divisive topics in Australian finance. Every time housing affordability hits the headlines, these tax policies are thrown into the spotlight, with passionate arguments on all sides.
But beyond the political soundbites and heated discussions, what would actually happen if we curbed these concessions? Who really stands to lose, and would it solve our housing woes? I want to cut through the noise and offer a clear-eyed look at the practical consequences.
Who Is Actually Negatively Geared? It's Not Who You Think!
First, let's get one thing straight. The idea that all 2.2 million property investors are negatively geared is a misconception. A property is only negatively geared when its expenses (like mortgage interest, maintenance, and fees) are greater than the rental income it generates.
In my experience, this situation is most common under specific circumstances:
New purchases with a high loan-to-value ratio (LVR): When you've borrowed a large percentage of the property's value, the interest payments are naturally high, often exceeding the rent.
New builds with high depreciation claims: New properties allow for significant tax deductions through depreciation, which can push an otherwise neutral or positive cashflow property into a paper loss.
Over time, as rents rise and loan balances are paid down, most properties naturally become positively geared. This means many long-term investors holding property for a decade or more wouldn't be directly impacted by changes to negative gearing itself, as they are no longer claiming a loss.
The Grandfathering Clause: Why Most Current Investors Might Be Safe
Politically, it's almost certain that any significant changes to these tax laws would be grandfathered. This means the new rules would only apply to properties purchased after a certain date.
If this happens, existing investors would likely be able to continue claiming deductions under the current system. This "grandfathering by default" ensures that those who made financial decisions based on the existing rules aren't suddenly penalized. The real impact wouldn't be on current holdings but on the strategy for future property investment.
The Great Rent Debate: Will Landlords Pass on the Cost?
This is the million-dollar question. One side argues that if you increase costs for landlords, they will simply pass them on to tenants through higher rent. The other side argues that rent isn't determined by a landlord's expenses, but by what the market is willing to bear.
A Bigger Problem: The Elephant in the Room is Stamp Duty
While negative gearing gets all the attention, a far more damaging tax on the housing market is stamp duty. This massive upfront cost acts as a "moving tax" that actively discourages people from relocating to homes that better suit their needs.
Think about the downsizers—older Australians living in large, empty family homes. Many would like to move to a smaller, more manageable property, but the prospect of paying tens of thousands of dollars in stamp duty is a powerful disincentive. This keeps larger homes off the market, restricting supply for growing families who desperately need them.
Many economists and I agree: a far better system would be to replace stamp duty with a broad, low-rate annual land tax. This would apply to all properties (including the primary place of residence, with potential credits for stamp duty already paid) and would be paid by the owner. It would improve market liquidity, encourage the efficient use of housing stock, and provide a more stable revenue source for state governments than the volatile sugar-hit of stamp duty.
My Take: What's the Smart Path Forward?
Tackling housing affordability requires a multi-pronged approach, not a single silver bullet.
Reform Negative Gearing & CGT: These concessions disproportionately benefit high-income earners and encourage speculative investment over long-term, sustainable rental provision. Ring-fencing losses so they can only be claimed against the property itself (not personal income) and adjusting the CGT discount would be a logical step.
Abolish Stamp Duty: This tax is a relic that hurts mobility and locks up housing supply.
Introduce a Broad Land Tax: Replacing stamp duty with a small, annual land tax would create a more efficient and equitable system.
Focus on Supply: Ultimately, no tax tweak can defy the laws of supply and demand. We must build more homes. A good policy could be to shift tax incentives towards investment in new housing builds rather than existing stock.
Changing tax policy is never easy, but we can't let the fear of upsetting a portion of investors prevent us from creating a fairer and more functional housing market for all Australians. The goal shouldn't be to punish investors but to rebalance the system so that housing serves its primary purpose: providing homes for people to live in.