The Question Everyone Is Asking

Right now, one of the most common questions is about potential taxation changes on investment properties—and what that might mean for the market.

There’s a lot of noise, speculation, and leaked proposals being discussed, particularly around changes to capital gains tax and possible limits on negative gearing. While nothing is confirmed, it’s worth understanding how markets typically respond to this kind of shift.

Property Is an Ecosystem

The property market doesn’t operate in isolation—it’s an ecosystem.

It constantly adjusts based on:

• Supply and demand
• Investor returns
• Interest rates
• Construction costs
• Government policy

When one part changes, the rest adapts. That’s why historically, even significant policy shifts tend to be absorbed over time.

Lessons from the Past

We’ve seen major intervention before.

Back in the mid-1980s, the Hawke–Keating government removed negative gearing altogether. The result? A sharp reduction in rental supply, rising rents, and significant pressure on tenants. The policy was reversed within two years.

The key takeaway: when investment incentives are removed or reduced, supply is often the first casualty.

What Could Happen Next

If proposed changes go ahead—such as increased capital gains tax or limits on negative gearing—the likely outcome is a slowdown in investor activity.

That matters because investors play a critical role in supplying rental stock.

If:

• Investor demand drops
• New construction slows
• And population demand remains steady

Then rental supply tightens.

And when supply tightens, rents rise.

The Inflation and Building Cost Factor

There are other forces at play too.

Inflation is tipped to potentially sit around 5–6%, and building costs are reportedly increasing anywhere between 10–25%. That has two major impacts:

• New developments become more expensive and less viable
• Existing properties increase in value due to replacement cost pressure

This combination can further restrict supply while supporting asset values.

The Affordability Debate

There’s a broader narrative that these changes are about housing affordability.

But in reality, if rents rise due to reduced supply, it can make it harder—not easier—for first home buyers to enter the market. Higher rents mean less ability to save for a deposit.

Final Thought

Markets adjust. They always do.

Policy changes can shift behaviour, but the fundamentals of supply and demand remain the driving force. Any reduction in supply—particularly in the rental market—tends to have immediate and real consequences.

As always, before making any financial decisions, it’s essential to seek independent professional advice tailored to your situation.