It’s a fine balancing act for our housing

THE “big call” in the 2026 Federal Budget to “realign and remap” the country’s housing market through landmark changes to negative gearing and capital gains tax (CGT) is essential to bring more balance to the property sector, says an industry expert.

“This is an attempt to activate the supply side and point private capital toward actually building homes rather than competing for existing ones,” Russell Yaxley, president of the Real Estate Institute of Tasmania (REIT), told Australian Conveyancer.

“In Hobart, we currently have a 0.3 per cent vacancy rate and average rent has increased 6.7 per cent this year, indicating intense competition for existing stock.

“That situation is unsustainable for renters, and something had to give. The settings needed to change, and these changes to CGT and negative gearing are the government’s attempt to do so.

“The move to shift both levers toward new builds shows positive intent and a genuine attempt to drive supply into the market.”

With negative gearing on residential property restricted to new builds from July 2027, Yaxley said the tax advantage that has supported investors in holding existing stock for decades is gone.

Yet, he added, property investors should be seen as an important part of the solution to the country’s supply crisis, and they now have three options:

• Pivot out of property entirely, which only adds more pressure to an already stretched market;
• Keep grandfathered existing holdings at 50 per cent and wear the 30 per cent CGT moving forward; or
• Do what the budget measures are designed to activate and pivot toward new builds to maintain their CGT advantage.

“For an investor to maintain the 50 per cent CGT, they need to sell existing property, buy land and build,” said Yaxley, who adds he will be interested to watch how this strategy plays out over the next year or so.

“The foreseeable blockages will be planning approvals, fast-tracking, finding builders to actually build and headworks infrastructure to unlock the land,” he said.

“The scale of investors willing to make that pivot is the real challenge and that is what I will be watching. We will know a lot more in about 400 days.”

Upbeat about the prospect of a prosperous Tasmanian real estate market over the next decade, Yaxley nonetheless warns the state’s population needs to grow at a faster rate and young, skilled Tasmanian workers need to be retained for sustained growth to occur.

“Long-term, I am optimistic for Tasmania’s property market but also clear about the conditions required to be met for that optimism to be justified,” he said.

“Tasmania has structural advantages with our lifestyle appeal, relative affordability against the mainland, a growing reputation for food, tourism and the arts and university cities in Launceston and Hobart that anchor a knowledge economy.

“But we need the state to grow its population at a faster rate. Our retention challenge is real; we train young Tasmanians and too often watch them leave for mainland opportunities.”

Yaxley believes providing adequate housing choices is key to retaining the best and the brightest.

“Housing that is available, affordable and well-located is part of what makes people stay,” he said.

“Get supply right, and I believe Tasmania can sustain steady, healthy growth for a decade.

“Fail on supply, and we risk pricing out the very people we need to build our future workforce and community. We must act now.”

Yaxley said housing supply is the “most serious and critical issue” facing his state, along with affordability, while regulatory and compliance burdens on industry professionals are impacting workers.

“Our first problem is we are simply not building enough homes to meet demand and the gap between what we need and what we have keeps widening,” he said.

“The second problem is affordability and the squeeze on first home buyers, who are still finding it hard to enter the market – even with government assistance – because investors are competing strongly.

“And the third hurdle is the regulatory and compliance burden on industry, particularly with the rollout of the AML/CTF Tranche 2 reforms, which requires significant adjustment from agents, property managers and conveyancers alike.

“All three of these issues are connected. Fix supply and you ease affordability. Simplify compliance frameworks and you free up industry to focus on serving their clients well.”

And Yaxley said the single biggest bottleneck to improving housing supply is planning.

“The combination of labour shortages in the building trades and restrictive planning processes extends approval timelines and increases costs, discouraging developers from starting new projects,” he added.

“Building approvals in Tasmania are at their lowest level in five years, hitting the state particularly hard given its already constrained housing supply.

“We have developers who want to build, we have buyers who want to purchase, but what stands in the middle too often is a planning system that moves slowly, adds costs and creates uncertainty.

“Planning is what we need to fix first. It’s not Council’s issue, they are enforcing the rules that the state has set up.

“I believe large investment into funding the Council planning teams and increasing headcount will alleviate much of the bottleneck and streamline processes.

“In fact, there should be an increase in funding along the whole chain. For instance, I’ve heard that the Land Title office has only two people issuing titles for the entire state. It’s simply underfunded and over-complicated.”