Australia is staring down the barrel of a full-blown rental crisis, with new modelling warning proposed changes to the Capital Gains Tax discount will unleash a “nightmare for tenants”.
The research from property analytics firm FoundIt examined the likely real-world outcome of the federal government slashing the longstanding 50 per cent CGT discount, revealing differing outcomes across the country.
The move, expected to be announced with the May federal budget, would drive a surge in rents in most major markets if the changes were not matched by a drastic drop in migration intake, the study found.
Experts warned that ripping away the incentive will stop investors from buying in suburbs with low rental yields, stalling the supply of new rental homes at a time of surging population growth due to migration.
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Why Hobart is most exposed Aus city to CGT changes
Competition for rentals is already stiff. Picture: Liam Kidston
And while the changes might deliver a win for higher-income first-home buyers, the collateral damage will be devastating for lower-income renters, commentators said.
It’s these, more cash-strapped, tenants without enough in savings for a deposit who will have to rely on a shrinking pool of available rentals and pay higher amounts for a roof over their heads.
MORE: Why tax changes are particularly bad for Adelaide investors
FoundIt head of research Kent Lardner said some first-home buyers may find it easier to enter the market once the changes take effect but there was unlikely to be a marked improvement in housing affordability.
He said tweaking capital gains tax concessions were unlikely to push down home prices.
A more realistic outcome would be a flattening in home value growth over the longer term as existing investors simply hold onto their properties for much longer rather than selling.
The research suggested a minimal impact on home prices. Picture: NewsWire / Max Mason-Hubers
“It will be a nightmare for tenants. As the tenant pool grows and the supply of rentals stall, competition will rise. Rents could rise,” he said. “Migration intake needs to fall or the changes will be problematic.”
FoundIt uncovered a varying state-by-state impact:
New South Wales
See the NSW suburbs set to be most affected
Sydney’s “battler suburbs” would be among the most affected, FoundIt revealed.
This included a mix of suburbs where home prices were under $1.2m, attractive to investors, but where rental yields were low.
Treasurer Jim Chalmers has said CGT changes could be on the table. Picture: NewsWire / John Gass
This meant investors were currently being incentivised primarily by the prospect of capital gains.
Flagged suburbs included Mount Druitt, St Marys, Blacktown, Fairfield, Penrith, and Campbelltown.
Victoria
See the VIC suburbs most impacted
More than 120 Melbourne suburbs have been plunged into the CGT “danger zone”.
A staggering 37 per cent of Melbourne suburbs sit in a critical band where rental yields are just 3.5 to 4.5 per cent, meaning investors rely entirely on capital growth to justify their investments.
They include affordable hot spots like Sunbury, Craigieburn, Werribee and Melton.
With the Victorian government already having hammered landlords with increased land taxes and other rental reforms, experts warn that altering CGT will trigger a further exodus of investors, locking up rental supply.
Queensland
See the QLD suburbs most impacted
Brisbane’s extreme property price growth since Covid has already priced investors out of much of the market, which has meant the Queensland capital would be one of the less impacted markets by CGT changes.
FoundIt revealed that only 9 per cent of the city’s suburbs had a median house price below $1m, a price point within most investor budgets.
FoundIt head of research Kent Lardner said many investors were already priced out of Brisbane.
A cluster of postcodes in the northern and southern corridors of the city would see the biggest impact of the CGT changes because the yields alone were not attractive enough for new landlords.
The Rocklea-Acacia Ridge area was deemed the city’s most exposed zone.
Tasmania
See the Tassie suburbs where the changes will hit hardest
Hobart was declared the nation’s most CGT-sensitive housing market.
The CGT vulnerability is not confined to specific pockets; it is the “default condition” of the city, with 62 per cent of Hobart’s suburbs in the peak investor sensitivity band, FoundIt revealed.
The shockwaves will be most felt in the Glenorchy, Clarence, and Launceston local government areas.
South Australia
See the SA suburbs where rents would rise
Adelaide ranked as the second most CGT-sensitive capital city in the country.
Its exposure was not limited to the fringes and was deemed citywide because the market as a whole remained much more attractive to investors than larger capitals like Sydney and Melbourne.
Adelaide was the most exposed mainland capital city to CGT changes.
Affected suburbs traversed both the northern and southern corridors of the city, from Elizabeth down to Seaford, and Paralowie across to Redwood Park.
Western Australia
Perth ranked third for CGT sensitivity, but it had no suburbs in the highest risk classification.
Greater Perth’s vulnerability was concentrated primarily in the southern and southeastern corridors, including Rockingham, Gosnells, Armadale, and Kwinana.
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