Why this report matters (and why you should care)
Australia has set a big housing target — 1.2 million new homes by 2030 — but approvals and completions aren’t keeping pace. That shortfall flows straight through to your world: longer build timelines, more competition for trades, stubborn prices, and rising rents.
The McKell Institute’s report steps into that gap with a simple idea: don’t rip up negative gearing or touch the family home; instead, tweak capital gains tax (CGT) settings to steer investor dollars toward new homes, especially apartments and medium-density.
Why should a homeowner or first-time buyer care about a tax report? Because where investment flows, construction follows. If more capital favours new dwellings, we should see more shovel-ready projects, more product choice, and—over time—some easing in price and rent pressure.
That said, a bigger pipeline of apartments also raises the stakes on compliance at handover: fire safety, acoustics, and waterproofing need to be right the first time under the NCC for Class 2 buildings. More stock helps, but only if it performs as designed (Report, p. 8–10; 15–16).
Bottom line: policy settings shape the pipeline. Watch CGT signals—they could influence what gets built, where, and how soon.
The Supply Gap
Australia needs to approve and build far more homes than we’re currently managing. To hit the 2030 target, the pipeline needs to average about 220,000 approvals a year. We’re closer to 160,000—leaving a gap of roughly 60,000 dwellings each year (Report, p. 9).
That shortfall keeps pressure on prices and rents, and it slows down build timelines because trades and materials stay in short supply (Report, p. 8–10).
McKell’s point is simple: tax settings influence where investors put their money.
Right now, a lot of investor capital chases established detached houses rather than new dwellings, which doesn’t add to total supply. If policy nudges investors toward new homes—especially apartments and medium-density—more projects become viable, more get financed, and more actually reach completion.
What this means for you:
- Time: A sustained shortfall means longer waits for approvals, trades, and handovers.
- Cost: Low supply props up sale prices and rents; it also keeps input costs elevated.
- Quality/Compliance: When new stock does come through, the stakes rise on getting NCC compliance right first time—particularly for Class 2 buildings (fire safety, acoustics, waterproofing) so defects don’t wipe out the benefits of new supply.
Why the housing tax debate is stuck
For years, the national argument has been framed as a two-option stalemate: either overhaul negative gearing or leave everything as-is. That narrow framing hasn’t shifted outcomes on the ground—supply is lagging and affordability keeps sliding (Report, p. 11–12). McKell’s thesis is that the debate needs a new lane: keep the family home untouched and don’t tinker with negative gearing, but recalibrate CGT settings to steer investor behaviour toward new supply.
This approach tries to break the deadlock without detonating political landmines. By changing the after-tax return profile across dwelling types—rewarding new attached homes more than established—the plan aims to alter what gets financed and built, while keeping familiar pillars (family home exemption, negative gearing) intact.
What this means for you:
- Predictability: If reform targets CGT only, homeowners and small investors get a clearer path forward than wholesale changes to negative gearing.
- Practicality: A precise tax signal is more likely to influence what gets built in your suburb than a rerun of an all-or-nothing fight..
What doesn’t change: Family home & negative gearing
Here’s what McKell says won’t be touched. First, the family home stays tax-free for capital gains—no change to the 100% CGT exemption. Second, negative gearing stays—the report argues against reopening that fight and instead focuses on CGT settings to influence investor behaviour (Report, p. 12–15).
For homeowners, that means the way your principal place of residence is treated doesn’t shift. For small investors, rental losses can still be offset as they are now. The proposed reform is aimed at what you buy (new vs established; attached vs detached) and how gains are discounted, not at your ability to deduct interest or expenses (Report, p. 12–16).
What this means for you:
- Owner-occupiers: No tax change on selling your home.
- Investors: The lever moves to CGT discount rates by dwelling type, which could change the after-tax maths on new apartments versus established houses.
The McKell Plan — four CGT tiers explained
McKell’s suggestion is to keep the rules everyone knows for the family home, leave negative gearing alone, and instead reshape CGT discounts by dwelling type to tilt investment toward new supply—especially apartments and medium-density (Report, p. 7, 12–16).
The four tiers (Report, p. 7, 16):
- Family home: 100% CGT discount (unchanged). Your principal residence remains tax-free on sale.
- New attached dwellings (units/apartments/medium-density): 70% CGT discount. Higher after-tax reward to channel capital into projects that add the most homes per site.
- New detached dwellings and all existing investments (grandfathered): 50% CGT discount. Keeps the current setting for new detached builds and protects existing investors under grandfathering.
- Established detached dwellings (new purchases going forward): 35% CGT discount. A lower discount to discourage investors from chasing existing stand-alone houses that don’t add to total stock.
How the maths can shift for investors:
Suppose two options each grow the same before tax. Under this proposal, the after-tax outcome improves for new attached and worsens for established detached. That nudges feasibility for apartment/medium-density projects—more of them pencil out, get financed, and move to site.
What this means for you:
- First-home buyers: Less investor heat in the established-house market may improve access.
- Apartment buyers: A busier pipeline can mean more choice—but puts a spotlight on build quality and NCC compliance at handover.
- Small investors: The numbers may now favour new attached stock if you’re investing rather than owner-occupying.
Why McKell thinks this can be budget-positive
McKell argues the proposal can pay for itself—and then some—because the lower discount on established detached investments (35%) is expected to raise revenue that offsets the higher discount for new attached dwellings (70%).
In their modelling, the overall effect is roughly revenue neutral within about five years, moving to a net gain of around $1.4 billion over ten years at the 70% rate for new attached dwellings.
Here’s the logic in plain terms. Australia’s tax take from capital gains depends on both how much gains are made and what discount applies. Established detached houses have historically delivered strong capital growth.
Trimming their discount concentrates the tax base where gains are larger. At the same time, a higher discount for new attached stock is meant to stimulate projects that add supply—supporting broader affordability goals—while not blowing a hole in the budget.
What this means for you:
- Predictability: If Treasury sees this as budget-safe or positive, the settings are likelier to endure—handy for your longer-term planning.
- Timing: Any transition or grandfathering would matter for when you buy or sell (details would sit in the legislation).
Will it actually build more homes?
McKell models a supply lift of 0.70% to 1.20% by 2030 if the CGT settings are reshaped as proposed. In real numbers, that’s about 75,800 to 130,000 additional dwellings nationally on top of the baseline pipeline.
The uplift isn’t evenly spread
Larger states with deeper apartment markets capture the biggest gains: NSW roughly 23,000–40,000, Victoria 19,600–33,600, and Queensland 15,300–26,200, with other states and territories sharing the remainder (Report, p. 17).
Why that pattern? Because the 70% discount is aimed squarely at new attached dwellings, and those projects tend to concentrate where zoning, demand, and construction ecosystems already support medium- and high-density.
By changing the after-tax maths, more projects are expected to “pencil,” secure finance, and move from DA to delivery.
Two caveats (carve outs) matter for readers:
- These are modelled outcomes, not guarantees—results depend on investor behaviour and implementation details, including grandfathering and anti-avoidance drafting.
- More apartments only help if they perform as designed at handover—fire safety, acoustics and waterproofing compliance under the NCC must be verified so defects don’t erode the consumer benefit.
What this means for you:
- Time & Cost: If the uplift materialises, extra stock can ease competition for homes and rentals, which may temper price and rent growth.
- Quality & Compliance: A bigger Class 2 pipeline raises the importance of robust inspections and documentation at settlement.
Electorate-level view (with a Queensland lens)
McKell drills down to seat-by-seat estimates of how many extra dwellings could be delivered if the proposal lands. For Queensland readers, that helps translate a national model into what you might see in your suburb.
The report’s Queensland snapshots include ranges like: Brisbane: 652–1,119, Moncrieff (Surfers): 649–1,113, McPherson (Gold Coast south): 490–841, Ryan (west Brisbane): 447–767, with other SEQ seats showing similar medium-density-friendly uplifts (Report, p. 26).
The general pattern: larger, well-located electorates with zoning capacity and established project teams see more of the apartment-led boost (Report, p. 23–28).
What this means for you:
- Time & Cost: Where new attached projects concentrate, competition for rentals may ease first, and purchase options could broaden.
- Quality & Compliance: More Class 2 handovers mean more focus on fire safety, acoustics and waterproofing verification at settlement.
- Local nuance: Uplift ranges are directional, not promises. Results still depend on planning, finance, builder capacity, and delivery risks (Report, p. 23–28).
Who “wins” under the plan (and how)
If the CGT dial turns the way McKell suggests, different groups feel the effects in different ways.
First-home buyers. By lowering the discount on established detached investments (35%) and lifting it for new attached (70%), investor heat is steered away from the same older houses FHBs compete for. That can free up room at auctions and shift more investor demand into dwellings that actually add supply.
Renters. Extra apartment supply is aimed at easing the squeeze on rentals over time. More keys coming to market doesn’t mean overnight drops in rent, but it’s one of the few levers that can lean against ongoing increases.
Small investors. The after-tax maths improves for new attached stock relative to established houses. If two assets grow the same before tax, the higher discount on new attached improves the investor’s net position, which can help get projects financed and built.
There’s a consumer-protection side to this, too. If the pipeline tilts toward apartments and medium-density, buyers should double-down on build quality at handover—fire safety, acoustic performance and waterproofing documentation matter more than marketing gloss. The report’s mechanism is about quantity; your job is to make sure the quality stacks up (Report, p. 16–17).
Risks, assumptions & where bias may sit
No policy lever is magic. McKell’s case relies on a few moving parts working as intended.
Model dependence. The projected uplift—0.70% to 1.20% by 2030—comes from modelling that assumes investors will meaningfully reweight from established houses to new attached stock when CGT discounts change (Report, p. 21–22). If financing costs stay high, or if planning bottlenecks slow approvals, the response could be smaller or slower than hoped.
Legislative complexity. Carving out different CGT discounts by dwelling type means careful drafting in the tax law (e.g., ITAA 1997 constructs) and watertight definitions for “new attached,” “new detached,” and “established” to avoid loopholes and gaming (Report, p. 18–19). Transition rules and grandfathering need to be clear to prevent distortions around the start date.
Market concentration risk. Because the strongest uplift is expected where apartment delivery is already viable, some regions may see limited benefit unless complementary planning and infrastructure settings improve (Report, p. 16–17, 23–28).
Bias and framing. The report consciously avoids changes to negative gearing, positioning CGT-only reform as the best path. That choice improves political feasibility but narrows the solution set; readers should note this preference when weighing alternatives the report doesn’t explore.
Likewise, the budget-positive claim relies on relative growth patterns (established detached vs new attached); if price dynamics shift, revenue outcomes could differ from the central estimate (Report, p. 16, 21).
What this means for you:
- Time & Cost: Treat the model as a scenario, not a promise. Your suburb’s outcomes will still hinge on planning, builder capacity, finance conditions and delivery risk.
- Quality & Compliance: If the pipeline tilts toward Class 2, the onus on due diligence at handover grows—documentation and onsite checks matter.
What this could mean for building types and quality on the ground
If policy steers more investment into new attached dwellings, expect a fuller pipeline of apartments and medium-density projects in well-located suburbs. That’s the quantity story. The quality story is what buyers feel at settlement and in the first years of ownership: fire safety, acoustic comfort, and waterproofing must meet design intent and remain durable in real use.
What this means for you:
- Time: Early, thorough defect inspections can prevent months of post-settlement wrangling.
- Cost: Catching defects before titles transfer reduces strata-wide rectification bills.
- Quality/Performance/Compliance: Ask for compliance and test documentation, not just declarations. Match samples and data sheets to approved drawings and specifications.
What to watch next—policy pathway and timing
Big ideas still have to pass through the fine print. McKell notes that implementing different CGT discounts by dwelling type would require careful drafting in the tax law so definitions are tight, workarounds are closed, and transitions are clear. Terms like “new attached,” “new detached,” and “established” would need to be nailed down, along with start dates, grandfathering for current holdings, and anti-avoidance rules to stop reclassification games.
The report frames its proposal for near-term policy conversations—think productivity, housing, and budget settings through 2025 and beyond. If a government takes it forward, expect consultation, exposure drafts, and a defined commencement with transitional rules.
What this means for you:
- Time: Announcements often create a rush to transact before/after the start date. Plan for that possibility.
- Cost: Grandfathering can protect existing investments; the detail will matter for your tax position.
- Predictability: Clear definitions reduce surprises—watch for the final wording, not just headlines.
Frequently Asked Questions
1) Does this change the tax-free status of my family home?
No. The report proposes no change to the principal place of residence. Your family home remains exempt from CGT.
2) Is negative gearing affected at all?
No. McKell argues against reopening negative gearing and focuses solely on adjusting CGT discounts by dwelling type.
3) What CGT discount would apply if I buy a new apartment and hold it for more than 12 months?
Under the proposal, new attached dwellings (units/apartments/medium-density) would receive a 70% CGT discount. Final details (including holding-period mechanics) would be set in legislation, but the tier itself is stated as 70%.
4) What CGT discount would apply if I buy an established house as an investment after the change?
35% CGT discount for established detached investments purchased after commencement. Existing investment holdings would be grandfathered at the current 50% discount.
5) How does this add up to 75,800–130,000 extra homes by 2030?
The modelling assumes investors re-weight from established houses toward new attached stock when after-tax returns change, lifting project feasibility and delivery. The national uplift is estimated at 0.70%–1.20% by 2030, or ~75,800–130,000 additional dwellings.
6) Will this lower prices or rents in my suburb?
It’s directional, not guaranteed. If the uplift materialises where you live, extra supply can temper price and rent growth over time. Impacts vary by local market depth, planning approvals, and delivery capacity.
7) How are current investments treated—what does “grandfathered” mean?
Holdings acquired before commencement keep the current 50% discount (they’re “grandfathered”). The new tiers apply to future acquisitions per the definitions set in the legislation.
8) When could any change start, and how would it be legislated?
Timing isn’t specified. Implementation would require amendments with clear definitions for “new attached,” “new detached,” and “established,” plus anti-avoidance and transition rules.
9) What are the biggest risks or assumptions in the modelling?
Key assumptions include: investors actually shift behaviour; planning systems and finance allow projects to proceed; and budget effects track price growth patterns. Any of these could under- or over-shoot.
10) How should I verify quality/compliance if buying in a new apartment building?
Ask for as-built evidence, not just intent: fire-stopping registers and certifications (NCC Vol One, Section C context), acoustic performance documentation (NCC Part F5 context), and waterproofing certificates for internal/external areas (NCC Part F1 with reference practices such as AS 3740 and AS 4654 where applicable). The report anticipates more attached stock; your due diligence should match that reality.
Anthony Painter
Anthony Painter
Anthony Painter
Anthony Painter
Anthony Painter
