Australia has some of the world's costliest homes. Will scrapping tax breaks help?

Australia's government is scrapping tax breaks for property investors in a bid to cool the nation's overheated housing market and give young buyers a fighting chance. The reforms target negative gearing and capital gains tax concessions that have long benefited landlords.

Negative gearing allows investors to claim losses against other income when their mortgage and expenses exceed rental revenue. The capital gains tax discount, introduced in 1999, cuts the taxable portion of profits from property sales roughly in half. Together, these mechanisms have fueled decades of investor demand, pushing Australian home prices to some of the world's highest levels relative to income.

The government frames this as necessary relief for first-time buyers locked out of a market where median home prices in major cities now exceed A$700,000 (around US$460,000). Youth unemployment remains high, and savings rates have tanked as rental costs surge. Policy makers argue that reducing investor incentives will free up supply and stabilize prices.

Opposition economists and property groups counter that scrapping these breaks will trigger a supply squeeze. Fewer investors means fewer rental properties. Landlords may sell holdings rather than accept reduced returns, they argue, potentially worsening affordability for renters and further concentrating ownership among wealthy buyers who can absorb the tax hit.

The reforms arrive amid global interest rate hikes that already slowed Australian property speculation. But housing shortages persist. Australia needs roughly 500,000 new homes over the next decade to meet demand. Tax policy alone won't solve that structural problem.

The government's gamble hinges on belief that investor demand artificially inflates prices beyond what owner-occupiers would pay. Evidence from other markets remains mixed. Canada and New Zealand pursued similar investor-discouraging policies with limited price impacts. Australia's reforms could reshape the rental market without delivering the affordability gains supporters expect.