Tax reform or planning reform? What's really holding back housing
Debate around the capital gains tax (CGT) discount is intensifying, with suggestions the longstanding 50% concession could be halved in the upcoming federal budget.
The CGT discount, introduced in 1999, reduces the taxable gain on investment assets held for more than 12 months. It’s long been seen as an incentive to invest in shares and property – but critics now argue it distorts investment behaviour, encourages speculation in existing housing and contributes to falling home ownership.
Among them is the NSW Treasury, which recently backed a reduction in the discount in its submission to a federal Senate committee, arguing the discount “disproportionately benefits higher-income earners” and contributes to declining home ownership. It also noted NSW residents contribute 38% of the nation’s capital gains tax revenue, despite making up only 31% of the population – a reflection of higher property values and stronger investor participation.
The Treasury said the discount, when combined with negative gearing, encourages speculation in existing housing stock rather than directing capital to more productive or supply-boosting uses. This, it says, entrenches inequality and reduces affordability for first-home buyers.
But even if the CGT discount were to be cut – potentially from 50% to 25%, as some have proposed – there’s no guarantee it would improve access to housing in meaningful ways.
Independent economist Chris Richardson told the Australian Financial Review that he estimates halving the discount would have about the same impact on prices as a single 0.25 percentage point rate hike.
“It would unwind two months of 2025’s growth in housing prices,” he said. “That’s far from nothing. Yet, it is neither apocalyptic nor revolutionary.”
In other words, the impact may be noticeable, but not transformative – and won’t address the more pressing issue at the heart of Australia’s housing affordability challenge: supply.
And the numbers on supply remain stark.
To meet its target of 1.2 million new homes over five years, the federal government needs to facilitate around 20,000 new dwellings per month. Yet according to the Australian Bureau of Statistics, just 15,542 new dwellings were approved in December 2025 – down 14.9% from the month prior. Since July 2024, monthly approvals have consistently tracked below the required pace.
That shortfall matters. Fewer approvals today means fewer completions tomorrow – and in tightly held, high-demand areas, that imbalance is especially pronounced.
In prestige suburbs such as those on Sydney’s Lower North Shore, where building opportunities are naturally limited by geography and planning controls, demand continues to outstrip supply. The appeal of proximity to Sydney Harbour, quality schools and lifestyle infrastructure keeps competition strong, regardless of tax settings.
For property investors, it’s a timely reminder to focus on fundamentals. Tax settings may shift at the margins, but the structural undersupply of well-located housing is unlikely to change in the short term. With vacancy rates still under 1% in many inner-city areas and borrowing activity rising, long-term demand remains strong.
Should the CGT discount be cut, grandfathering provisions are likely to apply. But even if they don’t, what ultimately matters most is holding quality property over time – not trying to time policy shifts.
Whether you’re reviewing your property investment portfolio or planning your next property move, R&W Mosman/Neutral Bay offers trusted guidance in Sydney’s most sought-after suburbs. Contact us on (02) 9969 7622 or info@rwm.com.au for a confidential discussion.