Why this report matters (and why you should care)
Australia has set a big housing target under the National Housing Accord: 1.2 million new homes over five years from July 2024. Approvals and completions aren't keeping pace, and that flows straight into your world: longer build times, more competition for trades, stubborn prices and rising rents.
The McKell Institute's report offers a simple idea: don't touch negative gearing or the family home. Instead, tweak capital gains tax (CGT) settings to steer investor money toward new homes, especially apartments and medium-density.
Why should a homeowner care about a tax report? Because where investment goes, construction follows. If more money flows to new dwellings, we should see more projects, more choice and, over time, some easing in prices and rents.
If you're building a house to live in, nothing changes. The proposal is about what investors buy. But a bigger pipeline of apartments raises the stakes on getting fire safety, acoustics and waterproofing right in Class 2 (apartment) buildings (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
To hit the target, Australia needs to average about 220,000 approvals a year. We're closer to 160,000, a gap of roughly 60,000 dwellings a year (Report, p. 9). That keeps pressure on prices and rents, and keeps trades and materials scarce (Report, p. 8–10).
McKell’s point is simple: tax settings influence where investors put their money.
Right now, a lot of investor money chases established houses, which doesn't add to total supply. Nudge investors toward new homes and more projects become viable, get financed and get built.
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.
Why the housing tax debate is stuck
For years the debate has been framed as either overhaul negative gearing or leave everything alone. That hasn't changed anything on the ground (Report, p. 11–12). McKell's idea is a third option: leave the family home and negative gearing alone, and recalibrate CGT to steer investors toward new supply.
By rewarding new attached homes more than established ones, the plan aims to change what gets financed and built without kicking the political hornet's nest.
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 targeted tax signal is more likely to change what gets built in your suburb than another all-or-nothing fight.
- Don't assume the choice is all-or-nothing. A CGT-only change could be the lever that actually moves new supply (Report, p. 11–14).
What doesn’t change: Family home & negative gearing
McKell proposes no change to the family home (it keeps its 100% CGT exemption) and no change to negative gearing (Report, p. 12–15).
So the way your home is treated doesn't change, and small investors can still offset rental losses as they do now. The reform targets what investors buy (new vs established; attached vs detached) and how their gains are discounted (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
The plan keeps the family home rules, leaves negative gearing alone, and reshapes CGT discounts by dwelling type to tilt investment toward new supply (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, the same as now. An investor building a new detached house stays at the current 50%, and existing investments are protected.
- 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 shifts for investors:
Say two properties grow by the same amount before tax. Under this proposal, the investor keeps more of the gain on a new apartment and less on an established house. That helps more apartment and medium-density projects stack up financially and get built.
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.
- 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 plan pays for itself because the lower discount on established detached investments (35%) raises revenue that offsets the higher discount on new attached dwellings (70%).
Their modelling has it roughly revenue neutral within about five years, and a net gain of around $1.4 billion over ten years.
The logic: established houses have historically had strong capital growth, so trimming their discount taxes the bigger gains, while the higher discount on new attached stock encourages projects that add supply.
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, or about 75,800 to 130,000 extra dwellings nationally on top of the baseline.
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).
That's because the 70% discount targets new attached dwellings, which concentrate where zoning, demand and builders 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.
Electorate-level view (with a Queensland lens)
McKell also estimates extra dwellings seat by seat, which helps Queensland readers see what it might mean locally.
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.
- 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 settings change as McKell suggests, different groups feel it differently.
First home buyers. A 35% discount on established houses and 70% on new attached steers investors away from the older houses first home buyers compete for. That can take some heat out of auctions.
Renters. More apartments should ease the rental squeeze over time. It won't drop rents overnight, but it's one of the few levers that can lean against rising rents.
Small investors. If two properties grow the same before tax, the investor keeps more from new attached stock, which helps projects get financed and built.
There's a consumer-protection side too. 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 things 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.
What this could mean for building types and quality on the ground
If more investment goes into new attached dwellings, expect more 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: fire safety, acoustics and waterproofing must meet the design and hold up in real use. With more Class 2 (apartment) buildings coming through, inspections and documentation at handover matter more.
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
McKell notes that different CGT discounts by dwelling type would need careful drafting in the tax law. Terms like “new attached,” “new detached” and “established” would need tight definitions, along with start dates, grandfathering for current holdings and anti-avoidance rules to stop people reclassifying properties.
If a government picks it up, expect consultation, draft legislation and a set start date with transition 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 promises: fire-stopping registers and certificates (NCC Volume One, Section C), acoustic test results (NCC Part F7, sound transmission), and waterproofing certificates for wet areas (NCC Part F2, AS 3740) and external areas like balconies and podiums (NCC Part F1, AS 4654).
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