Why GST reform may matter more than negative gearing

Australia’s housing affordability crisis has become one of the defining economic and political issues of the decade, yet there remains deep division over how best to address it.

The Federal Government’s proposed changes to negative gearing and capital gains tax concessions, which was introduced to Parliament last week, have reignited debate over the role investors play in the housing market and whether taxation reform can meaningfully improve affordability.

Supporters of the reforms argue the measures will reduce speculative investment demand for established housing and help rebalance the market toward owner-occupiers. Critics, however, question whether investor-focused taxation changes can resolve what many economists and industry participants increasingly describe as a supply-side crisis.

Among those voices is Steve Douglas, Executive Chairman of SMATS Group, who believes Australia’s housing debate is focusing too heavily on investor taxation and not enough on the cost of delivering new homes.

“The reality is Australia does not have a demand problem, it has a supply problem,” Mr Douglas said.

“If governments genuinely want to improve affordability, they need to make it cheaper and easier to build housing at scale.”

Mr Douglas has launched a formal campaign petitioning for the current 10 per cent GST to be removed from new residential construction, arguing the tax adds substantial costs to housing delivery at a time when development feasibility is already under pressure from elevated construction costs, labour shortages and financing constraints.

GST on Construction - average cost per new house

Source: 1. ABS – Building Approvals, Australia, Mar 2002. 2. Openlot 2025 National ABS Housing Data Report. 3. ABS – Building Activity Dec 2025.

The proposal comes amid growing concern across the development sector that the proposed negative gearing and capital gains tax reforms could inadvertently reduce investment activity without delivering a meaningful increase in housing supply.

The proposed legislation would remove negative gearing benefits for future investments in established residential properties from July 2027, while replacing the existing 50 per cent capital gains tax discount with an inflation-indexed model. Newly constructed dwellings would remain exempt from the changes, retaining access to existing tax concessions.

While the exemption for new builds has been designed to encourage additional housing supply, analysts suggest the overall impact remains uncertain. 

This brings the GST issue into sharp focus, according to Mr Douglas.

“If this new cost is lifted too high, then there will be an ongoing reluctance to pay that excessive price for investors, but also especially for home builders, as the cost to live in rented accommodation during construction has risen together with the delays in delivering the built property and interest costs on carrying the loan as it nears completion.”

Research and analysis from property data firm Cotality has highlighted the complexity of the issue, noting investor participation plays a significant role in Australia’s housing ecosystem, particularly in supporting rental supply.

Cotality analysis has also suggested the reforms may leave both investors and housing advocates dissatisfied, with the measures unlikely to substantially improve affordability unless accompanied by broader supply-side initiatives.

That broader challenge is increasingly acknowledged across the political spectrum.

Housing failures of successive governments

Mr Douglas said housing policy had become a long-term failure of successive federal governments from both major parties.

“No government current or previous, of either major party, can claim it has solved housing affordability,” he said.

“We’ve had decades of rising prices, worsening supply shortages and increasing barriers to entry for younger Australians. This is not a problem created by one political party.”

Instead, Mr Douglas argued policymakers should focus more heavily on reducing the cost burden associated with delivering new housing stock.

Under the current taxation system, GST applies to new residential construction but not to established dwellings or commercial. Critics of the system argue this creates a structural distortion by effectively taxing the creation of additional housing supply while leaving existing housing comparatively advantaged.

“GST simply does not need to be on new residential construction as the GST revenue passes to the states and they are increasingly benefiting from the dramatic increase in stamp duty charges on the higher transaction prices currently being achieved,” Mr Douglas said.

The development industry has long argued that taxes, infrastructure charges, planning costs and compliance requirements are collectively pushing many apartment and townhouse projects beyond feasible delivery thresholds.

In some markets, projects approved years ago remain stalled due to escalating construction costs and uncertain margins.

Supporters of GST reform contend that removing GST from new housing construction could improve project feasibility, encourage additional supply and reduce pressure on developers to pass rising costs onto buyers.

While there is debate over how much of any GST saving would ultimately flow through to consumers, industry advocates argue the measure would at least improve the viability of projects that might otherwise never proceed.

States too dependent on stamp duty

The broader taxation debate also extends beyond the Federal Government.

State governments remain heavily reliant on stamp duty revenue, despite longstanding criticism from economists that the tax discourages housing mobility and creates inefficiencies across the property market.

Various reviews over the years have proposed transitioning from stamp duty toward broader land tax models, although political resistance has consistently limited large-scale reform.

Mr Douglas was strongly opposed to this proposal, stating that, “the shift from high stamp duty to annual collections is not warranted, instead the fact that the property prices have increased over the past decade means all states could effectively half the rate of duty and still collect the same revenue.

“Indeed all states have enough capacity to remove stamp duty entirely for new builds and first home buyers now but they simply refuse to relinquish the windfall revenue.”

For many in the property sector, the combination of GST, stamp duty, infrastructure contributions and rising development costs has created a cumulative tax burden that ultimately constrains supply.

At the same time, population growth and persistently low vacancy rates continue to place upward pressure on prices and rents nationally.

This tension sits at the centre of the current housing debate.

While the proposed negative gearing and capital gains tax reforms may alter investor behaviour at the margins, many analysts believe Australia’s affordability challenges cannot be resolved without significantly increasing the volume of new housing delivered to market.

Whether that requires GST reform, planning reform, infrastructure investment or a combination of all three remains contested.

What appears less disputed, however, is that Australia’s housing shortage has been years in the making and is unlikely to be solved by any single policy lever alone.

As Parliament debates the proposed legislation, the broader challenge for policymakers may be ensuring the national housing conversation remains focused not only on demand, but also on the long-term economics of supply.