Will the PM’s tax reform fix the housing crisis?

Summary

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Episode Overview

Title: Will the PM’s tax reform fix the housing crisis?
Host: Ruby Jones (Solstice Media, 7am Podcast)
Guest: Stephen Kakoulis (Economist, former senior adviser to PM Julia Gillard)
Date: May 13, 2026

Theme:
This episode dissects the Albanese government’s newly announced federal budget reforms targeting the housing market—specifically, the limiting of negative gearing and overhaul of the capital gains tax. With decades of experience in economic policy, Stephen Kakoulis joins to assess the likely real-world impact of these much-debated tax policy changes on Australia’s housing affordability, home ownership rates, and property prices. The discussion covers whether these reforms will deliver on political promises, the timeline for anticipated effects, and their relationship to broader housing supply challenges.

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Key Discussion Points & Insights

1. The Historical Context and Rationale for Reform

• Longstanding Unfairness:
  Stephen Kakoulis emphasizes the significance of these changes due to the historic distortion in housing policy:

  "We've been talking about the unfairness of the tax system as it applies to housing for many, many years and the distortion it creates in the housing market, giving that unfair financial advantage to investors and as a result of that, the unfair disadvantage to first home buyers..." (01:32)

• Nature of Reform:
  The government’s approach includes:
  • Curbing negative gearing on established dwellings
  • Adjusting capital gains tax (CGT) by replacing the discount with indexation to inflation

2. The Pace and Scale of Change

• Non-retrospective Reforms:
  • Negative gearing reforms are not retrospective and CGT changes will apply from 2027.
  • Kakoulis draws a historical parallel to the introduction of compulsory superannuation:

    "It takes a little while. And the fact that they're not starting till 2027 to take their full effect means that by definition they're not going to have a big impact. But I'm wondering if in 5 and 10 and 15 years time, the effect will come through OK." (03:02)

• Impact Forecasts Shared by Treasurer:
  • About 75,000 extra owner-occupiers over the next decade
  • House prices are projected to grow ~2% less over the next few years
    (Treasurer: 04:14)

3. How Significant Are the Projected Impacts?

• Incremental but Not Transformative:
  • Kakoulis notes similar research (citing Peter Tulip) supports these projections.
  • The reforms are part of a broader, incremental approach rather than a silver bullet:

    "None of Them by themselves will fix the problem, but when they're all working, you actually get a little bit of a compounding effect..." (04:39)

4. Outcome for Investors and Renters

• End of Investor Subsidies:
  • Investors can still buy property, but will lose taxpayer subsidies, increasing fairness (06:04)
• Fiscal Implications:
  • The government aims to reallocate funds toward priorities other than investor tax breaks.
• Rental Market Effects:
  • Any disruption to the rental market during the transition is expected to be "relatively small and temporary." (06:58)

5. The Politics of (Not) Being Bolder

• Political Constraints on Retrospectivity:
  • Kakoulis outlines that more aggressive reforms would have risked electoral disaster:

    "They could have been bolder, but probably would have lost the next election… you're hitting a big part of the electorate if you do it." (07:10)

  • The reforms stop short of retrospectivity due to the sizable group of affected property investors (1 in 6 or 7 households).
  • Quote:

    "A lot of the ideas are very, very good, but they're politically unpalatable, which makes them hard to implement… that's the policy versus politics issue on many of these issues, including as far as housing policy goes." (07:10)

6. Housing Supply vs Tax Changes

• Building Targets:
  • Government’s goal: 1.2 million new homes by the end of the decade.
• Reality vs Target:
  • Approvals are up (30% increase in early 2026 over previous lows), suggesting momentum, but Kakoulis estimates only about 1,050,000 homes will be built—short of the target but still a record.
  • Quote:

    "It's tracking well below that. We're not... going to see the 1...well, highly improbable to see the 1.2 million." (08:48)

7. The Five-Year Outlook: Cooler Prices, More Supply

• Current Dynamics:
  • Demand is softening due to high prices/inflation and slowed immigration.
  • Supply finally rising as construction picks up.
• Market Forecast:

  “So the next couple of years we're probably going to have house prices broadly flat to slightly down… Affordability will improve as wages go up even moderately. We're going to have new supply coming on stream and… demand… starting to cool off as well." (10:06)

• Reserve Bank's Attention:
  • Housing market stabilization is welcome, helps with financial stability and inflation objectives (10:06)

8. Indicators of Reform Success

• Key Markers:
  • Ongoing upswing in dwelling approvals and completions.
  • Moderation or stagnation in house prices.
  • More first home buyers entering the market (evidenced by increased use of 5% deposit guarantee).
  • If annual first home buyers rise from 110,000 to 130,000+, it would be a sign of success (11:50)
  • Sustained flat or falling prices over years as a sign of improved affordability.

    "We've been crying out for [this] for, for decades, to be frank." (13:11)

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Notable Quotes & Memorable Moments

• "We've been talking about the unfairness of the tax system as it applies to housing for many, many years..." – Stephen Kakoulis (01:32)
• "The effect will be later rather than sooner…in 5 and 10 and 15 years time, the effect will come through." – Stephen Kakoulis (03:02)
• "None of Them by themselves will fix the problem, but when they're all working, you actually get a little bit of a compounding effect." – Stephen Kakoulis (04:39)
• "They could have been bolder, but probably would have lost the next election…" – Stephen Kakoulis (07:10)
• "If that number [first home buyers] gets up to 130, 130, 540,000 per annum, then that's an implied success." – Stephen Kakoulis (11:50)
• "Flat house prices improves affordability. And that's what we've been crying out for, for, for decades, to be frank." – Stephen Kakoulis (13:11)

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Key Timestamps for Important Segments

• [01:13] – Immediate reaction to tax reform and the issue of fairness
• [03:02] – Discussion on the delayed impact and political constraints
• [04:39] – Effect of reforms as part of a larger fix for multiple housing problems
• [06:04] – Impact on investors and implications for renters/budget
• [07:10] – Political realities and limited boldness of the reforms
• [08:48] – Supply side: tracking the 1.2 million new homes goal
• [10:06] – Five-year outlook: demand cooling, prices flat or down
• [11:50] – How to measure the success of the reforms
• [13:11] – Closing remarks on long-awaited affordability improvement

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Conclusion

This episode offers a balanced, data-driven, and politically grounded assessment of the Albanese government’s housing tax reforms. While no single measure will solve the crisis, these reforms are seen as a positive—if slow-moving—step towards greater fairness, improved fiscal outcomes, and a more balanced housing market. The anticipated impact is real, but delivery on the government’s ambitious promises depends as much on increasing supply as it does on fixing the tax settings—and ultimately, on the political will to weather the long haul.

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Transcript

[Ruby Jones]

I'm Ruby Jones and you're listening to 7am. The housing market and young people without rich parents being locked out of it has dominated dinner table conversations for years. This budget, the Albanese government decided to try and do something about it, limiting negative gearing and replacing the capital gains tax. So what difference will that make and how long would it take for anything to change? One person who can help answer those questions is Stephen Kakoulis. He's been an economist for decades, including as senior economic adviser to then Prime Minister Julia Gillard. He's seen firsthand how these tax policies have shaped the housing market and how reversing them has seemed impossible. Today, economist Stephen Kokoulis on the future of housing in Australia. It's Wednesday, May 13th.

[Interviewer]

Stephen, welcome to 7:00am thank you, Ruby. So, as you listened to the treasurer last night announce these changes to the way that housing works, what was your first thought?

[Stephen Kakoulis]

My first thought is, at long last,

[Treasurer]

the reforms in this budget will lift our total investment in housing to a record $47 billion. We're levelling the playing field for first home buyers with 5% deposits and tax reform to help more young Australians into their own home.

[Stephen Kakoulis]

We've been talking about the unfairness of the tax system as it applies to housing for many, many years and the distortion it creates in the housing market, giving that unfair financial advantage to investors and as a result of that, the unfair disadvantage to first home buyers or even early stage upgraders in the house. So you go from your two bedroom flat to a little cottage somewhere, so you're actually seeing some tax reform that takes away some of this financial incentive to negative gear established dwellings and to have a more realistic taxing arrangement to the capital gains through the change to the capital gains tax discount and indexing it back to inflation, which seems to be a lot fairer but a lot more constructive in terms of improving the interplay of first home buyers versus investors.

[Interviewer]

And in terms of impact, I mean these changes to negative gearing, they aren't retrospective. And the changes to capital gains, they don't begin until 2027.

[Treasurer]

We'll also introduce a minimum 30% tax rate on capital gains from July next year and on discretionary trust from July the year after. This is about better aligning the taxes paid on these types of income with the taxes paid on wages.

[Interviewer]

How long do you think it's going to be until we see any real difference in the housing market?

[Stephen Kakoulis]

Well, the politics got in the way of making them retrospective or to encompass existing holders. So I'm reminded a little Bit of the introduction of compulsory superannuation from Paul Keating in the early 90s. That might sound like a strange thing to say, but we can see now how that evolved into something that's really quite powerful. And if we think back to then, Keating sort of announced a 3% contribution to superannuation and after a year there was chicken feet in your superannuation account. It wasn't much. Then, of course, the 3% got revised higher and higher and higher. So we have this situation now where people, if you've been in the paid workforce for two or three decades, have actually accumulated a tidy sum in terms of the negative gearing rules and capital gains tax rules. The effect will be later rather than sooner. It takes a little while. And the fact that they're not starting till 2027 to take their full effect means that by definition they're not going to have a big impact. But I'm wondering if in 5 and 10 and 15 years time, the effect will come through OK.

[Interviewer]

I mean, that does seem like a while to wait to see change. The treasurer, what he said is that there'll be about 75,000 extra owner occupiers over the next decade.

[Treasurer]

Since 1999, house prices have risen over 400% more than twice as fast as as average incomes. Our tax changes will help about 75,000 Australians achieve the dream of home ownership.

[Interviewer]

He also says that house prices will grow about 2% less over the next couple of years. So when you think about the housing market as a whole, how significant are those predictions?

[Stephen Kakoulis]

Yeah, they seem right and they're consistent with a lot of other research on the topic. The housing advocate Peter Tulip's been very vocal on some of those effects of the tax changes. They're not the biggest issue impacting on house prices and unaffordability right now. They do help. And when you're talking even a couple of percent is $20,000 on a million dollars. So you're actually having an effect over and above what's happening to the housing market and in concert with some of the other reductions in compliance costs for builders, dare I say red tape costs. And that's going to be good in terms of adding to new supply. So the housing problem was caused by many issues and it'll be fixed by the unwinding of many of the issues. So what seems to be a small impact from negative gearing changes? Capital gains tax changes, productivity changes, the changes in zoning laws that Claire o' Neill's been trying to implement with the state and local government sector? None of Them by themselves will fix the problem, but when they're all working, you actually get a little bit of a compounding effect that. Well, yeah, it'll still take a few years to have its full effect, but it will have an effect and add to supply and add to affordability. I think it's fairly clear that the combination is quite powerful.

[Interviewer]

And one of the goals here seems to be to have fewer investors buying up houses and spur investment into new buildings.

[Ruby Jones]

Do you think that that is going to happen?

[Stephen Kakoulis]

Well, the issue that is still there, if you want to buy a dwelling, a residential property for investment purposes, you can just that you're not getting other taxpayers to subsidise your costs. And that's the element of fairness or unfairness that was in the existing system. Now it's going to again, it's one of those ones where part of the problem in addition to affordability, is that it costs the budget a lot of money. And at a time when the government sort of tried to reprioritise its spending. Looking at tax changes, anything that can improve the fiscal bottom line or allow the reallocation of money to things that are more important than a tax break for investors, well, to me that's a good thing. And there could be implications for the rental market as we sort of get through this adjustment process. But I think again, they're going to be relatively small and temporary.

[Interviewer]

And you mentioned earlier that politics got in the way in terms of making any of these changes retrospective. So do you think that they could have been bolder? Would there be more impact if they had been?

[Stephen Kakoulis]

They could have been bolder, but probably would have lost the next election because we know that about 1 in 6, 1 in 7 householders has an investment property that they negatively gear or use as part of the structure of their self managed superannuation fund and these sorts of things. So you're hitting a big part of the electorate if you do it. And of course the scare campaign would have been really huge, ideally if the government didn't have to appeal to voters, they should have made it retrospective. But it's a little bit like a lot of other discussions on tax and spending. A lot of the ideas are very, very good, but they're politically unpalatable, which makes them hard to implement because you're impacting a relatively small part of the population quite significantly for the benefit of the masses, and the masses only get a small amount of that benefit. That's the policy versus politics issue on many of these issues, including as far as housing policy goes,

[Ruby Jones]

coming up the future of the housing market under these changes.

[Interviewer]

Can we talk more about supply, Stephen? The government says housing supply is still the main issue when it comes to housing affordability and it has this target to build 1.2 million new homes over the next three years.

[Government Official]

We want more Australians to own their own home. We have a plan to build 1.2 million homes by the end of the decade. We're training more tradies.

[Interviewer]

How is it tracking on that?

[Stephen Kakoulis]

It's tracking well below that. We're not. We're not going to see the one. Well, highly improbable to see the 1.2 million. Having said that, if they'd started it a year later, they might have got a lot closer because what we're actually seeing in the dwelling building approvals numbers is quite a marked upswing in the number of new building approvals. And of course, approvals become completed dwellings after 12 months or so of construction. So, interestingly, in the last three months in January, February, March of this year, the latest available data, it's increased by 30% from the low point two, two and a half years ago. So there is a pickup in building approvals occurring, but I think they'll fall short of the 1.2 million. My current educated guess is I'll probably get to about 1,050,000. So a little bit short, but that will be the largest five yearly rolling some number of dwellings being built in any time in history. So we are seeing a response. It just won't meet that very ambitious target that they put in place.

[Interviewer]

And these changes, if you think about

[Ruby Jones]

them in the context of global instability,

[Interviewer]

interest rates back up at 4.35%. What do you think is happening to demand or going to happen? Can you paint me a bit of

[Ruby Jones]

a picture of the market over the

[Interviewer]

next sort of five years?

[Stephen Kakoulis]

Well, even before these budget announcements, we had clear signs of the housing price market was weakening, so we're getting a construction lift, but prices were starting to weaken. I think there's a combination of factors there that we are seeing a slowing in net immigration. So to the extent, and there is some extent that population growth does add to housing demand, so that is actually cooling off. That was confirmed in the budget as well. But we've also got this issue where the affordability is sort of hitting people very hard, that prices are so high now that people are sort of stepping back saying, I can't afford to buy. So that fall in auction clearance rates that we've seen, the fall in house prices in Sydney and Melbourne that we're seeing is starting to sort of permeate even into what we call the boom cities. You know, Adelaide, Perth and Brisbane, where prices had been very, very strong, they're now starting to slow down as well. So the next couple of years we're probably going to have house prices broadly flat to slightly down in just dollar terms. So affordability will improve as wages go up even moderately. We're going to have new supply coming on stream and we're going to have that hot demand that had been there in the post Covid period starting to cool off as well. So for home prices, probably flat to slightly weaker and improved affordability. And that is something that the Reserve bank will digest. Even though they don't target house prices, obviously they do look at house prices as signs of financial instability or financial sort of ructions within the banking sector. So I think that they'll be looking at that and so thinking, well, we probably don't need to hike too many more times to meet our inflation and full employment objectives.

[Interviewer]

So what are the signs that you'll be looking for then as to whether these reforms have been successful in delivering what the government is promising here, a fairer housing system.

[Stephen Kakoulis]

Yeah, they'll take a bit of time to come through, but the key things for me will be a continuation of the upswing in dwelling construction activity. That's important. What'll be important is to see whether there's a bit of a moderation in price pressures coming through. Will we see investors staying out of the market, therefore putting further downward pressure on prices to the benefit of first home buyers still taking advantage of the 5% deposit guarantee, which is part of what we've seen a bit of a pick up in First Home buyers since that scheme came into effect in October last year. So I'll be looking at things like the number of First Home buyers who are actually tapping the market now, who are getting into the market. Unfortunately, we don't get high frequency data on home ownership in Australia. Usually the annual average is about 110,000 per per annum. If that number gets up to 130, 130, 540,000 per annum, then that's an implied success. The other part of the solution again is not just a month or six months of weak house prices, but a couple of years where house prices don't do much, they might even drift down. If that happens too, it's a sign that the supply and demand imbalances are coming back into play. Improving affordability, as we were mentioning, even with modest wage increases, flat house prices improves affordability. And that's what we've been crying out for, for, for decades, to be frank.

[Ruby Jones]

Well, Stephen, thank you so much for your time.

[Stephen Kakoulis]

Thank you, Ruby.

[Ruby Jones]

We'll be back tomorrow with another episode of 7am where we're digging into one of the biggest and strangest celebrity trials in recent memory. Rebel Wilson versus her deb costar, Charlotte McInnes.

[Legal Analyst]

I think that nobody comes out of this looking particularly good. I think, you know, both sides have done a great job of painting each other as the villain in this story. I think, you know, if Charlotte wins, then it's going to be very hard for Rebel to continue her storytelling as being a truth teller and a champion of women. If Rebel wins, I think that that's going to have huge implications for Charlotte's career.

[Ruby Jones]

I'm Ruby Jones.

[Closing Host]

Thanks for listening.