Australia’s peak building industry body has warned that tinkering with key property tax settings could deepen the nation’s housing crisis.
The Housing Industry Association (HIA) has called on the federal government to rule out any changes to negative gearing and capital gains tax in this year’s tax review, warning that further tax uncertainty could stifle new home construction and worsen Australia’s housing shortage.
Releasing the HIA’s new report, Taxation of Housing and its Impact on Supply, on Tuesday (27 January), the association’s chief economist, Tim Reardon, said the housing sector was already weighed down by a complex tax burden and that further policy disruption could choke the delivery of new homes.
“You don’t fix a housing shortage by taxing housing harder,” Reardon said.
“And you certainly don’t make homes more affordable by destabilising the tax settings that support new home construction.”
The federal government’s comprehensive tax review – flagged for release later this year – is expected to consider the treatment of housing-related concessions, including negative gearing and the capital gains tax (CGT).
Both mechanisms have long been politically sensitive, with critics saying they privilege investors over first home buyers, while industry groups state they underpin the financial viability of new housing projects.
The HIA’s latest analysis positions housing as one of the most heavily taxed sectors in the Australian economy, with charges applied at nearly every development stage – including land acquisition, planning, construction, and sale.
The body highlighted that many of these measures fall most sharply on new housing, directly adding to development costs and the price of new dwellings.
Reardon said decades of government reliance on housing-related revenue had distorted the market and compounded the shortfall in supply.
“The political reflex has been the same for decades,” he said.
“First it was to blame investors. Then foreigners. Then foreign investors. Meanwhile governments quietly add more taxes, more charges and more costs to housing, and wonder why supply keeps falling short.”
Investors critical to housing pipeline
The HIA report states that investors finance more than 40 per cent of new homes and an even higher share of apartment and rental developments – an indicator, it said, of investors’ central role in housing delivery.
Reardon cautioned that altering investor tax incentives would not redirect capital into new construction, but rather deter participation in the housing market altogether.
“When you discourage investors, you don’t free up housing, you stop it being built,” he said.
He said that reducing investor activity through changes to negative gearing or CGT would constrain project pipelines already under pressure from high construction costs, financing challenges, and labour shortages.
“Investors don’t neatly switch from established homes into new construction when taxes rise. They leave the housing market altogether,” Reardon said.
Policy consistency key to affordability
Reardon also advised that proposals to tax established housing more heavily could inadvertently weaken the economics of new housing projects.
“New homes don’t exist in isolation,” he said.
“They become established homes. Taxing established housing more heavily reduces the value of new housing as well, which makes fewer projects stack up.”
The HIA warned the federal government that affordability could not be achieved through revenue measures alone.
With population growth outpacing supply and planning bottlenecks persisting across major capitals, the association is pressing for longer-term policy consistency to anchor investor confidence and development feasibility.
“More homes will only be built if governments stop treating housing as a revenue base and start treating it as essential infrastructure,” Reardon said.
[Related: Construction costs lift despite annual increases hitting new lows]
