Australian Monthly: Tax Reform and Investor Activity: Three frameworks point to a 15% reduction

Research evidence excerpt

Australian Monthly: Tax Reform and Investor Activity: Three frameworks point to a 15% reduction

Deutsche Bank

Research

Economics Date

Australian Monthly 21 May 2026

Tax Reform and Investor Activity: Three

Phil Odonaghoe frameworks point to a 15% reduction

Economist

+61-2-8258-1606

Australia’s 2026-27 Federal Budget outlined the biggest change to the taxation

treatment of housing investment in a quarter of a century. How will property

investors respond?

We calculate that the abolition of negative gearing announced in Australia’s

2026-27 Federal Budget could reduce the number of new investor finance

commitments by about 15%. This would take the flow of new investor loan

commitments from around 200,000 (annual average past three years) down to

around 170,000 a year. We show how this estimate stacks up against three

separate frameworks: (1) empirical evidence drawn from the 1985-1987 abolition

of negative gearing; (2) The Treasury’s modelled estimates of the expected boost

to owner-occupiers; and (3) the ‘concentrated crowding in’ now likely to emerge

in the new-build sector.

We share Treasury’s view that the impact on house prices will be modest. That is

because: (a) changing the taxation treatment of residential property as an asset

class does nothing to change the fundamental demand for shelter, and in relation

to the latter (b) there remains a material undersupply of dwellings, which has in

fact been exacerbated by Budget 2026-27 because net migration has been

revised up by 55,000 over the two years to 2026-27. We expect house price

growth to slow this year because interest rates have increased. Any additional

impact over and above that interest rate impact is unlikely to be discernible.

On rental inflation, the 1985-1987 abolition of negative gearing rings alarm bells