Australia’s housing market is increasingly defined by a structural imbalance between strong underlying demand and persistently weak supply. While much of the policy focus has centred on planning systems, land supply, infrastructure charging, and construction costs, taxation settings affecting housing investment have become a growing focus of public debate. Negative gearing and capital gains tax discount are frequently cited as primary drivers of housing affordability pressures.

This report examines the role of these tax settings within the broader housing system, noting that housing is one of the most heavily taxed items in the economy and arguing that housing outcomes are shaped by tax settings, among other factors. It proposes that governments need to first fix housing supply, not seek to increase tax imposts on housing supply. 

Housing investment plays a central role in Australia’s dwelling supply pipeline, particularly for rental housing and higher-density development.

Key findings

• Taxes are applied at every stage of the housing lifecycle. Many of these taxes fall most heavily on new housing, directly increasing costs and reducing the feasibility of new projects.
• International comparisons are frequently misapplied in the housing tax debate. Differences across countries typically arise not from whether deductions are allowed, but from how housing is taxed as a whole. 
• Economic modelling and historical experience consistently indicate that increasing taxes on housing investors reduces investment in new housing, particularly in supply-constrained markets.
• Addressing the challenge requires increasing investment in housing from owner occupiers, investors and government. This can only be achieved through lowering the cost of delivering and financing completed homes. 
• Improving housing affordability requires policies that support a sustained expansion in housing supply.