Tax reforms overtake interest rates as house price pressure

Federal Government tax reforms have overtaken interest rates as the most widely cited downward pressure on Australian residential property prices, according to the Australian Property Institute’s (API) first property market survey since the May Federal Budget.

The API’s Q3 2026 Australian Property Market Outlook surveyed 265 property professionals between 12 June and 6 July, finding 82 per cent identified negative gearing reform as a downward pressure on residential prices.

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Capital gains tax reform and the interest rate outlook followed, both cited by 77 per cent of respondents.

While interest rates remain the most commonly cited downward pressure across every other property sector, the shift in residential sentiment suggests the housing market is already responding to proposed reforms, despite the changes not taking effect until 1 July 2027.

API Chief Economist Dr Sherman Chan said the survey provides the first measured view from professionals working directly within the property market since the reforms were announced.

“Since Budget night there has been no shortage of opinion about what these reforms will do,” Chan said. “This is the first time the professionals who value residential property for a living have been surveyed on it, and their message is clear: the market is pricing these reforms now, more than a year before they begin.”

The findings also reveal a divide between the intended beneficiaries of the reforms and the industry’s expectations. Some 63 per cent of respondents expect negative gearing changes to make housing less affordable for renters, while 62 per cent said the same of the CGT reform.

There is no equivalent consensus that home buyers will benefit. Only 48 per cent believe negative gearing reform will improve affordability for buyers, while 46 per cent expect the same from CGT reform.

The survey also found uncertainty around whether the reforms will stimulate new housing supply. More professionals expect CGT reform to reduce supply after July 2027 than increase it, at 34 per cent compared with 23 per cent. For negative gearing, 31 per cent expect supply to fall, compared with 28 per cent who anticipate an increase.

“The residential market is now caught between two opposing forces,” Chan said. “The structural undersupply that has driven prices for years is still there. What has changed is that tax policy is now pulling just as hard in the other direction.”

Despite the shift in sentiment, the underlying housing supply crisis remains a significant upward pressure on prices. Lack of housing supply was cited by 82 per cent of respondents, followed by lack of land supply at 73 per cent, population growth at 70 per cent and construction costs at 63 per cent.

Residential sentiment fell from 6.0 to 5.0 on the API’s 10-point scale, while the headline API Property Market Outlook Index declined for the third consecutive quarter to 5.1.

For the property and construction sectors, the findings highlight an increasingly complex housing market where tax policy is now competing with long-standing supply constraints to shape the outlook for prices, development and housing affordability.

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Federal Government tax reforms have overtaken interest rates as the most widely cited downward pressure on Australian residential ...