---
title: "If Australia Reforms CGT, Here's What Actually Happens to Property Prices"
description: "Two CGT reform models are on the table: Grattan (25% discount) and Pocock (new vs existing). We model the property market impact of each, from short-term panic buying to long-term rental spikes."
author: Yan Zhu
date: 2025-05-26
category: Finance & Tax
url: https://premiumrea.com.au/blog/cgt-reform-property-market-impact-australia
tags: ["capital gains tax", "CGT reform", "Grattan Institute", "Pocock", "negative gearing", "tax policy", "property market", "Australia"]
---

# If Australia Reforms CGT, Here's What Actually Happens to Property Prices

*By Yan Zhu, Co-Founder & Chief Data Officer at PremiumRea — 2025-05-26*

> Everyone's talking about CGT reform. But almost nobody is modelling what happens next. I've run the numbers on both the Grattan and Pocock proposals — and the second-order effects are far more interesting than the headline changes.

Capital gains tax reform is back on the political menu. Again.

Two proposals dominate the conversation right now. The Grattan Institute wants to slash the CGT discount from 50% to 25% and restrict negative gearing. Senator David Pocock's model takes a different approach — maintaining the discount for new housing while removing it for established properties, with a grandfather clause for existing investors.

Both proposals claim to improve housing affordability. Both would raise billions in revenue. And both would have dramatically different effects on the property market depending on how they're implemented.

I've spent the past month digging through the policy papers, the Treasury modelling, and the historical precedents. What I found is that the headline changes are almost irrelevant. It's the second-order effects — the behavioural shifts, the rental market consequences, and the timing dynamics — that will actually determine who wins and who loses.

Let me walk you through both models. No politics. Just maths.

## The Grattan model: slow bleed, no grandfather clause

The Grattan Institute's proposal is the more aggressive of the two. Their core recommendation is to reduce the individual and trust CGT discount from 50% to 25%, phased in over five years. Year one: 45%. Year two: 40%. Year three: 35%. And so on until the discount settles at 25% in year five [1].

Notably, Grattan rejects any grandfather clause. Every investor — existing and future — would be subject to the new rate on the same timeline. Their reasoning is that grandfather clauses create market distortions and reduce the revenue impact. The projected revenue gain is $6.5 billion per year at full implementation [1].

They also propose restricting negative gearing so that investment losses can only offset investment income (including future capital gains), not wage and salary income. Currently, if your investment property loses $10,000 a year on paper, you can deduct that directly from your PAYG income and get a tax refund of up to $4,500 at the top marginal rate. Under Grattan's model, that $10,000 loss would be quarantined and only usable against future investment gains.

What does this mean for the property market?

Short-term (year one to two): minimal panic. The five-year phase-in is deliberately designed to prevent a sell-off. When the discount only drops from 50% to 45% in year one, the financial incentive to sell is negligible. You'd need a property with $500,000 in capital gains before the 5% discount reduction costs you more than the transaction costs of selling [2].

Medium-term (year three to five): behavioural shifts emerge. Investors who were planning to sell within the next decade start bringing forward their timeline to lock in the higher discount. This creates a mild increase in listings, which puts downward pressure on prices in investor-heavy suburbs — think areas with high apartment density or inner-city terraces popular with negatively geared buyers.

"The data tells a different story from the panic you'll read on social media," says Yan Zhu, Chief Data Officer at PremiumRea. "A 25% CGT discount is still a 25% discount. Property held for more than 12 months still gets tax-preferred treatment. The investors who leave are the marginal ones who were barely breaking even on negative gearing. The ones who stay are the ones actually making money from their properties."

Long-term (year five onwards): this is where it gets interesting. Grattan acknowledges their model may reduce new housing construction by up to 10,000 dwellings over five years [1]. If demand stays constant (and with net migration running at 400,000-plus per year nationally, it will), fewer new dwellings means tighter supply, which means higher rents and eventually higher prices. The reform designed to improve affordability could end up worsening it within a decade.

## The Pocock model: new vs existing, with a grandfather clause

Senator Pocock's proposal is more surgical. There are five variations floating around, but the two most likely to gain parliamentary support are Options 3 and 4.

Option 3: the 50% CGT discount applies only to newly constructed dwellings. Existing dwellings lose the discount entirely. Negative gearing is restricted to a single property per investor.

Option 4: similar to Option 3, but negative gearing is fully abolished rather than limited to one property [3].

The critical difference from Grattan: Pocock includes a grandfather clause. If you purchased your property before the reform date, you retain the 50% discount for the life of that asset. The new rules apply only to purchases made after the legislation takes effect.

This single difference changes everything about the market dynamics.

Short-term (year one to two): panic buying. Not panic selling. Every investor who was considering a purchase in the next five years will attempt to buy before the cutoff date to lock in the 50% discount permanently. This creates a massive demand surge in the 12 to 24 months before implementation.

I saw something similar in 2017 when Labor took a negative gearing reform proposal to the election. The mere threat of change drove a pre-emptive buying wave that contributed to price growth in several capitals. Now imagine that dynamic with a concrete legislative date attached [4].

And here's the kicker: simultaneous with this buying frenzy, vendors with existing properties will be reluctant to sell. Why would you give up your grandfathered 50% discount unless you absolutely had to? Every year you hold, the absolute dollar value of that discount grows as the property appreciates. Fewer sellers plus more buyers equals one outcome: prices go up. Fast.

Long-term (year three onwards): the market splits into two tiers. Grandfathered properties become premium assets because they carry a permanent tax advantage. New housing may get cheaper short-term as the CGT discount incentivises construction, but unless planning reforms dramatically increase supply (which every government promises and none delivers quickly enough), the structural shortage persists.

"It's important to note — actually, no, I'll say it more bluntly: the grandfather clause is a wealth transfer to existing property owners," says Yan Zhu. "If you own property before the reform date, your asset just got a permanent tax moat that new investors can't replicate. That's not an accident. That's how these policies get through parliament."

## The rental market time bomb nobody's discussing

Both reform models share one consequence that neither side of the debate wants to talk about: rents will go up.

Under Grattan, the restriction on negative gearing means high-income investors who were subsidising below-market rents through tax deductions will either raise rents to cover costs or exit the market entirely. Fewer landlords means less supply. Less supply with constant demand means higher rents.

Under Pocock, the loss of the CGT discount on existing properties makes investment less attractive at the margin. Some investors sell up, converting rental stock to owner-occupied housing. Again, fewer rentals, higher rents.

This isn't speculation. It happened in 1985.

The Hawke government restricted negative gearing in 1985. Within two years, rental supply fell sharply in Sydney and Perth, vacancy rates dropped below 1%, and rents spiked 20-30% in some postcodes. The policy was reversed in 1987 after widespread protests and a political backlash [5].

Melbourne's rental vacancy rate is already at 1.1% as of late 2023 [6]. There is essentially no spare capacity in the system. Any policy that reduces landlord participation — even by 5-10% — would push vacancy below 1% and trigger rent increases that make the current 'rental crisis' look quaint by comparison.

My projection: regardless of which model passes (if either does), we will see organised protests within two years of implementation, demanding the changes be reversed. The 1985 precedent is almost perfectly analogous.

For current property owners, the implication is straightforward. Your existing portfolio becomes more valuable, not less, under either reform scenario. You hold a scarce asset (housing in a supply-constrained market) with a tax advantage (grandfathered or transitional discount) that new entrants cannot access. The correct response is to hold, not sell.

## What this means for your investment strategy right now

Let me be concrete about the tactical implications.

If you're considering buying an investment property in the next 12 to 24 months, CGT reform — whichever model — is actually a reason to buy sooner rather than later. Under Pocock, buying before the cutoff locks in the 50% discount permanently. Under Grattan, buying earlier means you capture more capital growth under the higher discount rates during the phase-in period.

If you currently hold investment property, do not sell in response to CGT reform headlines. Every analysis I've run shows that the combination of ongoing capital growth, rental income, and the existing CGT discount (or grandfathered version) produces a better outcome than selling, paying CGT at the current rate, and redeploying the capital.

Consider this worked example. You bought a property in Melbourne's southeast for $700,000 in 2021. It's now worth $820,000 — a gain of $120,000. Under the current 50% discount, after holding for 12 months, your taxable gain is $60,000. At a 37% marginal rate, you'd pay $22,200 in CGT.

Under Grattan's 25% discount (fully phased in), your taxable gain would be $90,000, and your CGT liability rises to $33,300. That's $11,100 more tax. But if you hold the property for another five years and it grows at even a modest 5% per annum, the additional capital appreciation is roughly $220,000. Even at the reduced 25% discount, your after-tax position is dramatically better than if you'd sold today to avoid the reform [7].

The point: don't let tax policy tail wag the investment dog. CGT is a friction on disposal, not a reason to avoid the asset.

70% of Australian housing is owner-occupied. The fundamental driver of house prices is the ratio of available housing to people who need it. Right now, there are too many people and not enough houses. That equation doesn't change regardless of what discount rate the government applies to capital gains. Population is structural. Tax policy is cyclical.

As of late 2023, Melbourne's southeast suburbs are appreciating at $5,000 to $7,000 per month. The potential CGT reform timeline is two to three years away at the earliest, assuming it passes parliament at all. The opportunity cost of waiting dwarfs any possible tax saving from timing a sale around the reform [8].

Buy the land. Get the house free. Hold through the cycle. That strategy works under a 50% CGT discount. It works under a 25% discount. It would work under zero discount. Because the value is in the land, and land doesn't care about tax policy.

## References

1. [Grattan Institute, 'Taxes on Owner-Occupied and Investment Housing', 2023. CGT discount reduction from 50% to 25%, projected $6.5B annual revenue, potential 10,000 fewer dwellings over 5 years.](https://grfrattan.edu.au/report/taxes-on-housing/)
2. [Treasury, 'Tax Expenditures and Insights Statement 2023'. CGT discount cost to revenue estimated at $18B annually.](https://treasury.gov.au/publication/tax-expenditures-and-insights-statement)
3. [Senator David Pocock, 'Housing Reform Package: Options Paper', 2023. Five reform models for CGT and negative gearing with grandfather clause provisions.](https://www.aph.gov.au/Senators_and_Members/Senators/Senator?MNID=296429)
4. [CoreLogic, 'Housing Policy and Market Sentiment, 2016-2017 Federal Election Cycle'. Pre-election negative gearing reform debate and market impact.](https://www.corelogic.com.au/news-research)
5. [Reserve Bank of Australia, Research Discussion Paper 2003-07, 'Tax and the Rental Housing Market'. Analysis of 1985 negative gearing restriction and subsequent rental market impacts.](https://www.rba.gov.au/publications/rdp/2003/2003-07.html)
6. [SQM Research, Residential Vacancy Rates, October 2023. Melbourne vacancy 1.1%.](https://sqmresearch.com.au/graph_vacancy.php?region=vic%3A%3AMelbourne)
7. [PremiumRea financial modelling. CGT comparison: $700K purchase, $820K current value, hold vs sell analysis under 50% and 25% discount scenarios.](#)
8. [PremiumRea transaction tracking. Southeast Melbourne price appreciation $5,000-$7,000/month in Hampton Park, Cranbourne, Narre Warren, 2023.](#)
9. [Australian Bureau of Statistics, 'Housing Occupancy and Costs', Cat. 4130.0. 70% of Australian housing is owner-occupied.](https://www.abs.gov.au/statistics/people/housing)
10. [Australian Bureau of Statistics, Overseas Migration, 2023. Net overseas migration exceeding 400,000 annually, Victoria largest recipient state.](https://www.abs.gov.au/statistics/people/population/overseas-migration)

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Source: https://premiumrea.com.au/blog/cgt-reform-property-market-impact-australia
Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent