The federal government is expected to use next week’s budget to wind back negative gearing and the capital gains tax (CGT) discount, two taxation instruments favoured by property investors.
It is an idea that featured in Labor’s failed 2019 campaign.
However, there has long been speculation about its revival.
Now, the ABC has confirmed the taxes would form the centrepiece of a budget targeted at young voters.
But Australia’s biggest industry groups, economists and housing policy experts caution that any changes made may inadvertently push rents higher.
So we spoke to three experts who explained, in theory, what any housing tax policy changes could mean for renters.
First, catch me up
Over the past few months, the federal government has laid down the groundwork for changes to the CGT discount and negative gearing concessions in its federal budget next week.
When asked last Tuesday about the changes, Prime Minister Anthony Albanese said the issue of intergenerational equity was important.
“In Australian society, what we know is that for many young people, they feel like they haven’t got a fair crack compared with my generation and the generations beforehand,” Mr Albanese said.
Prime Minister Anthony Albanese appreciates the issue of intergenerational equity. (ABC News: Stuart Carnegie)
The ABC has since reported that there would likely be full grandfathering for negative gearing, but partial for the CGT discount.
Here is a breakdown of how they work and the expected changes.
What changes will be made to negative gearing?Read more
What is it?
Negative gearing is when investment property owners operate at a loss, typically because the mortgage payments and other costs are higher than the rental income.
They then deduct that loss from their overall taxable income to reduce their income tax payable.
The changes
Negative gearing changes are expected to be fully grandfathered, according to several sources.
But it is unclear whether the policy will cap the number of negatively geared properties, limit negative gearing to newly built properties, or phase it out entirely in future.
What changes will be made to the CGT discount?Read more
What is it?
Capital gains tax is paid when an investment property (or share) is sold, with the gain currently taxed at 50 per cent of a person’s ordinary tax rate.
The “gain” is the amount an asset has increased in value since it was purchased, with some adjustments.
The changes
The CGT discount is likely to be reverted to the pre-1999 scheme, which made the discount equal to the amount of inflation over the life of the asset, but Labor may also consider a flat discount such as 25, 30 or 35 per cent.
An important design question is whether the policy will be fully grandfathered, so that the old rules are retained indefinitely for all existing assets, or whether there will be some transition to the new rules.
Grandfathering (or a grandfather clause) is a provision where an old rule continues to apply to existing situations while a new rule applies to all future cases.
Some experts say the tax changes could stall the supply of new rental homes at a time of surging population growth due to migration.
Could it affect rental prices?
It likely will.
Recent modelling commissioned by property lobby groups showed new home building would slow and rents would rise under a range of scenarios.
Modelling for the property industry by economic firms Qaive and Tulipwood Economics found that combining a CGT discount cut with negative gearing restrictions could slash dwelling starts — housing construction — by tens of thousands of homes, pushing rents 2.4 per cent higher by 2029-30.
But the view among economists is that price rises won’t be “supercharged”.
PRD chief economist Diaswati Mardiasmo told the ABC rental prices won’t rocket to the likes of what we saw post-COVID.
“We saw rents supercharge post-COVID by 20-25 per cent because there were no investors playing in the market and there were a lot of people trying to find a rental property,” Dr Mardiasmo said.
“I don’t believe we will see prices increase to that extent.”
Diaswati Mardiasmo says rental prices should not skyrocket. (ABC News: Mark Leonardi)
Robert Carling, a senior fellow in economics at the Centre for Independent Studies, shared a similar view.
“Winding back negative gearing will make investment in rental housing less attractive, the supply of such housing will decline, and rents will increase,” Professor Carling told the ABC.
“However, I would not expect large effects from the kinds of changes that are rumoured.”
Cotality’s Rental Review Q1 2026 shows national dwelling rents increased 2.1 per cent over the three months to March, up from a 1.2 per cent increase in Q4 2025.
The median weekly rent for homes across Australia’s capital cities is $724 per week. Across the regions, the median rent is $612.
Curtin University economics professor Rachel ViforJ says for every investment property that is sold by landlords, that is one extra property available in the market for purchase by aspiring homebuyers.
“Even if rents rise in the short run, over time it should fall or stabilise as more people are able to buy their own homes,” Professor ViforJ told the ABC.
‘Devil in the details’
Dr Mardiasmo says whether we see any significant effect on rental prices, and when, will come down to “the devil in the details”.
Professor Carling agrees.
In this case, they are referring to grandfathering (remember the term we defined above?).
Grandfathering means any new changes to negative gearing or how CGT is taxed won’t apply to any investment properties that are bought prior to a particular date.
Negative gearing, CGT and trusts explained
For example, if the federal government says it is grandfathering negative gearing and it applies to properties bought before the budget, then that means it only applies to investment properties that people buy from that date onwards.
So it is not going to apply to properties that are already on the market and properties that investors already own.
In theory, one way the CGT discount could be partially grandfathered would be to tax gains made before a date set by the government at 50 per cent, while gains after would be taxed differently.
This is why Dr Mardiasmo and Professor Carling believe any flow-on effects to rental prices won’t be sudden — they will lag anywhere between six and 12 months.
“If existing investments are protected from the changes, the impact on rents will be less and it will be more drawn out over time,” Professor Carling said.
Even under all scenarios, existing renters likely currently have their rents locked in for six months to a year due to existing lease agreements.
Approximately 2.2 million Australians owned at least one investment property in 2020-21, according to the ATO.
Around 70 per cent of those hold one investment property, while 18 per cent hold two and 5 per cent hold three.
Don’t forget about rising interest rates
On Tuesday, the Reserve Bank of Australia (RBA) announced the cash rate will increase by 0.25 percentage points to 4.35 per cent.
It is the third time in a row the RBA has lifted its cash rate target, and there is every possible chance another could be coming our way later this year.
Successive rate rises could have a larger impact on rental prices than tax reforms for two reasons, Professor ViforJ said.
“First, many landlords owe a mortgage debt on their rental properties, so if rates continue to rise, they will raise rents to meet higher mortgage repayments,” she said.
“Second, as rates rise, homebuyers will find their borrower capacity decline, so many might wait for interest rates to fall before looking to make a home purchase.
“If this happens, there will be more competition in the rental sector as people remain longer in the rental market.”