Capital gains tax reform could soon become a game-changer for Australia’s housing crisis, with experts calling for urgent policy tweaks to unlock thousands of new homes over the next five years.
A new report from The McKell Institute outlines how capital gains tax reform can help Australia meet its ambitious goal of building 1.2 million new homes by 2030. The paper proposes four targeted changes aimed at encouraging investment in new housing developments, particularly units, while reducing speculative buying in existing detached homes.
The report comes amid growing concerns about housing affordability, low rental availability, and rising property prices across the country. Policymakers and housing advocates now agree that tax policy plays a critical role in shaping where and how new homes are built.
Four Tweaks to Drive Supply
The McKell Institute proposes the following four changes as part of a broader capital gains tax reform package:
- Increase the CGT discount for investors in newly constructed units to make apartment developments more attractive.
- Reduce the CGT discount for investments in detached homes to discourage competition with owner-occupiers.
- Link tax incentives directly to net additions in housing supply, rewarding those who contribute to construction.
- Set time-bound benefits to encourage faster project delivery and reduce development delays.
Institute chief executive Edward Cavanough says these changes are not about penalising investors, but about realigning tax settings with Australia’s national goals.
“Labor has resisted change to the CGT discount for too long,” he said. “Capital gains tax reform isn’t about punishing anyone. It’s about making sure the tax system helps meet our housing needs.”
Political Support May Be Building
The paper will be presented at Treasurer Jim Chalmers’ federal productivity roundtable, an event aimed at fostering agreement on long-term economic reforms. The roundtable provides a timely platform for discussing capital gains tax reform in the context of housing, infrastructure, and productivity.
As Australia faces a shortfall in housing supply, economists and housing experts believe adjusting capital gains tax settings could help shift investor interest away from buying existing properties and toward funding new developments.
A Smart Step Toward Housing Goals
Many believe that the current CGT system, which offers a 50 per cent discount to investors holding assets for over 12 months, has outlived its usefulness in a housing-constrained environment. Without targeted capital gains tax reform, Australia risks falling short of its housing commitments by 2030.
“Smart, balanced tax reform can reshape how and where investment flows,” the McKell report states. “If we want real results, especially in high-growth areas, capital gains tax reform must be part of the conversation.”
A Fairer, More Effective Tax System
Critics of the current tax structure argue that it has fueled property speculation, worsened affordability, and offered the largest benefits to high-income earners. Reform advocates say it’s time for a model that rewards the creation of new supply over passive gains from existing homes.
With bold but targeted capital gains tax reform, Australia could see thousands of new homes built sooner, helping to ease pressure on buyers and renters alike. The next steps now rest with political leaders willing to seize the opportunity for change.
