Budget Tax Changes May Not Help First Home Buyers

The Federal Government’s proposed tax changes are aimed at reducing investor activity in the housing market and making it easier for first home buyers to compete. But when you look closer, the reforms may not have the impact many are expecting.

Housing affordability remains one of the biggest challenges for first home buyers, and changes to negative gearing and capital gains tax are unlikely to significantly lower property prices. While the Government expects investor demand to slow, forecasts still show property prices continuing to rise over the next few years — only at a slightly slower pace.

In Western Australia, where the property market remains one of the strongest in the country, demand continues to outweigh supply. Even if some investors move away from established homes, strong competition from owner-occupiers is expected to keep pressure on prices.

One of the major proposed changes is the removal of negative gearing on established properties. The idea is to reduce competition between investors and first home buyers, but in reality it could shift investor demand into more affordable areas of the market.

Rather than building new homes, many investors may instead target lower-priced suburbs, apartments, or units where rental returns are stronger and properties can still generate positive cash flow. These are often the same properties first home buyers are looking at to get into the market.

The push towards new builds could also increase competition in that space. Many first home buyers already rely on house-and-land packages or new developments as a more affordable entry point, and more investor activity in that sector may make things harder.

The changes could also affect “rentvesters” — buyers who purchase an affordable investment property while continuing to rent where they want to live. This strategy has become increasingly popular among younger buyers trying to enter the market.

Under the proposed reforms, rentvesters would lose access to the full capital gains tax discount and may face higher tax bills when they eventually sell. They may also be limited in how they can claim investment losses unless they buy a newly built property, which may not always suit their financial goals or preferred location.

Overall, while the reforms are intended to improve housing affordability, many believe they will do little to make entering the property market easier for first home buyers.