The federal government's proposed negative gearing and capital gains tax reforms will fail to deliver on their housing affordability objectives and are more likely to push property fund managers.
Damian Collins (pictured), chairman of Westbridge Funds Management and managing director of Momentum Wealth, lodged the submission with the Senate Economics Legislation rents higher than to increase supply, according to a formal Senate submission by one of Australia's leading Committee on 3 June in response to the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026.
The government's proposed changes include restricting negative gearing for established residential property to new builds from 1 July 2027, replacing the 50% CGT discount with cost base indexation, and introducing a 30% minimum tax rate on real capital gains from the same date.
Collins argues that the government's assumption — that investors pushed out of established housing will simply redirect capital into new builds — ignores how investment decisions are actually made. Investors weigh after-tax cash flow, borrowing costs, vacancy risk, and the opportunity cost of investing elsewhere. Removing the ability to offset rental losses against other income changes that calculus immediately, and most acutely for middle-income investors managing one or two properties on a salary.
He points to supply-side constraints as a further flaw in the policy logic. The National Housing Supply and Affordability Council has found that new housing supply remains well below underlying demand, constrained by labour shortages and high material costs. Master Builders Australia has estimated that tens of thousands of additional construction workers are needed to meet the national housing target.
Collins argues that redirecting investor demand into new builds under these conditions risks "increasing competition with first home buyers for a constrained pool of new dwellings, rather than increasing aggregate supply."
On rents, he is direct. Australia's gross residential rental yield in capital cities sits at around 3.57%, with net yields closer to 2% after operating costs.
"Without the tax benefit of negative gearing, investors will gravitate to higher yielding assets, meaning fewer residential rental properties available and ultimately higher rents," Collins writes.
SQM Research data shows the rental market has little room to absorb further supply pressure. Australia's national vacancy rate sat at 1.2% in April— well below the 2.5–3.5% range considered balanced — with national asking rents rising 7.3% year-on-year.
The CGT reform draws equally sharp criticism. Collins argues that replacing the 50% discount with indexation will disproportionately reduce the reward for higher-risk, growth-oriented investment — the development, refurbishment, and value-add projects that add genuine capacity to Australia's property stock.
His modelling compares two hypothetical $1 million commercial property investments over five years: a steady income asset targeting 12% per annum, and a higher-risk value-add opportunity targeting 15%.
Under the current system, the value-add asset produces a meaningful after-tax premium that compensates the investor for greater risk. Under the proposed system, that after-tax risk premium falls by approximately 43% — from around $235,000 to $135,000. To restore an equivalent premium, the value-add asset would need to generate capital growth of approximately 13.1% per annum, around 2.1 percentage points above what the current system requires.
"This is a significant distortion," Collins writes. "It encourages investors to favour assets where returns are delivered as income and inflation linked growth, rather than assets requiring capital investment, risk taking, and active improvement."
The market is already adjusting ahead of legislation passing. Major lenders including CBA, NAB, Macquarie, and ANZ have updated their investor serviceability assessments, with CBA restricting negative gearing recognition to qualifying new builds and pre-existing loans from 29 May. Westpac estimates new investor activity could fall by as much as 34% in the near term as a result of the combined changes.
Collins does not argue for the status quo unconditionally. If the committee proceeds with negative gearing reform, he proposes either a 10-year staged phase-out for new investors in established property — allowing markets, lenders, and tenants to adjust progressively — or a capped annual passive loss allowance of around $25,000 per person, modelled on arrangements used in the United States. Either approach, he argues, would be less disruptive than an immediate restriction that risks "pushing investors out before replacement rental supply is available."
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