Tax reforms displace interest rates as top downward pressure on house prices, API survey finds
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Federal tax reforms have overtaken interest rates as the most widely cited downward pressure on Australian house prices, according to the Australian Property Institute’s first survey of property professionals since May’s Federal Budget.
The API’s Q3 2026 Australian Property Market Outlook, drawn from 265 property professionals surveyed between 12 June and 6 July 2026, found the negative gearing reform is now the single most widely cited downward pressure on residential prices, flagged by 82 per cent of respondents — edging out both the capital gains tax reform and the interest rate outlook, each cited by 77 per cent.
It marks the first time in the survey’s history that the interest rate outlook has not topped the list in the residential market. The rate outlook remains the most commonly agreed source of downward pressure across every other asset class, as it was last quarter, but residential property has entered new territory.
The reforms do not take effect until 1 July 2027, yet the market is not waiting. Residential sentiment recorded the steepest fall of any asset class this quarter, dropping from 6.0 to 5.0 on the API’s ten-point scale. The headline API Property Market Outlook Index fell for a third consecutive quarter, easing to 5.1.
API Chief Economist Dr Sherman Chan said the survey converted months of post-Budget speculation into a measured industry position.
“Since Budget night there has been no shortage of opinion about what these reforms will do. 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,” Dr Chan said.
The reforms will replace the 50 per cent CGT discount with an inflation-based discount for gains accruing from 1 July 2027, with a minimum tax of 30 per cent, and will limit negative gearing to new dwellings from the same date. Properties held before Budget night, 12 May 2026, are not affected by the negative gearing change.
Consensus on losers, not winners
The survey found a striking asymmetry in expectations: strong consensus on who will be worse off, and no consensus that anyone will be better off. Some 62 per cent of respondents expect the CGT reform to make housing more unaffordable for renters, and 63 per cent expect the same from the negative gearing changes.
Views on whether home buyers will benefit fell well short of consensus — 46 per cent for the CGT reform and 48 per cent for the negative gearing change. There is also no consensus that the reforms will achieve their stated purpose of boosting housing supply. More respondents believe the CGT reform will reduce new housing supply beyond July 2027 (34 per cent) than believe it will increase it (23 per cent). For the negative gearing reform, 31 per cent expect supply to fall against 28 per cent who expect it to rise.
“The reforms were introduced to support first home buyers and stimulate new housing supply. The professionals closest to the market are not convinced the supply will materialise, but they are convinced that renters will be worse off,” Dr Chan said.
The structural forces that have driven residential prices for years have not disappeared. Lack of housing supply (82 per cent), lack of land supply (73 per cent), population growth (70 per cent) and construction costs (63 per cent) are all still expected to push prices higher. The market is now caught between those longstanding upward pressures and a new downward force from tax policy.
“The residential market is now caught between two opposing forces,” Dr 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, and sentiment has fallen from the strongest of any sector to neutral in nine months.”
On affordability, Dr Chan said the findings carry significant implications for policymakers.
“There was no consensus that home buyers will be better off under the reforms, but there was consensus that renters will be worse off. That is a significant finding for policymakers, because renters are the group with the least capacity to absorb higher housing costs,” Dr Chan said.
Industrial leads; Victoria and New South Wales fall below neutral
Industrial property remains the market’s most resilient sector, scoring 6.4, underpinned by a lack of supply of industrial properties (61 per cent) and a lack of zoned land (55 per cent). Every state’s industrial reading remains above neutral, with Western Australia strongest at 7.4, followed by Queensland and South Australia at 7.0.
Office recorded its third consecutive quarter below neutral, easing to 4.6, with weakening business confidence (68 per cent) and general economic conditions (64 per cent) the primary drags. Retail slipped further below neutral to 4.9, weighed down by consumer confidence (66 per cent) and job market conditions (55 per cent).
Agricultural property held at 5.8, recording the smallest decline of any sector and supported by domestic demand for agricultural products. Agriculture is the only sector besides residential where the CGT reform reached consensus as a downward pressure on prices, cited by 59 per cent of respondents.
At the state level, the headline index fell across every jurisdiction, but only Victoria (4.1) and New South Wales (4.4) have moved below the neutral level. Queensland (6.6) and Western Australia (6.4) remain the most optimistic states, though both WA and South Australia (5.6) recorded the sharpest declines this quarter, driven predominantly by the residential outlook.
The full state-by-state readings from the API Property Market Outlook Index are: Queensland 6.6 (down from 7.5 last quarter), Western Australia 6.4 (down from 7.8), Tasmania 5.8 (down from 6.8), South Australia 5.6 (down from 7.0), New South Wales 4.4 (down from 5.2), Victoria 4.1 (down from 5.0), and the national figure 5.1 (down from 6.0).