Robin Hood politics might break the economy

For months, I have been one of the very few commentators openly stating what the data was already showing: property prices had already begun to fall. The auction clearance rate is the true indicator, and when it slips below 55% in Sydney and Melbourne for consecutive weeks, that is not a sign of softness — that is a correction. The aggregate data now confirms it.

Last week’s Cotality release (1 June 2026) puts the picture beyond debate. The national Home Value Index was flat (0.0%) in May, with Sydney down 0.9% and Melbourne down 0.8% — the two cities driving the downturn and absorbing the full weight of the Budget’s tax-side intervention. Matt Bell, chief economist at Oliver Hume Property Group, described the result as the moment the national housing market “came to a grinding halt.” ANZ has cut its national capital city forecast to 2.8% growth for the year, down from 4.8% in April. CBA has cut its forecast by nearly a third. In the top quartile of Sydney and Melbourne, prices have now fallen for five consecutive months.

So the Budget arrived at the worst possible time, with the wrong prescription, to treat a problem it fundamentally misunderstands.

The Treasurer, Jim Chalmers, has suggested, 

“If we are making it easier for first-home buyers to get a fair crack at auctions, then that’s a good thing.” 

The reality is more complicated.

Politicians are playing Russian Roulette with our economy. Driving property prices down does not just hand a discount to the first-home buyer — it hits the 1.4 million Australians the property sector employs, the 67% of household wealth tied to housing, and the state government revenue base that funds schools, hospitals and roads.

The government had a choice: increase Robin Hood taxes on property and business, or cut government spending, link migration growth to supply completions, and allow the free market to find its own efficiency. It chose the former.

Systemic risk, not sector problem

Property is not simply one investment class among many. It holds approximately 67% of all Australian household wealth and contributes roughly 10.6% to GDP directly, and up to 15% when flow-on effects are included. It employs over 1.4 million Australians across construction, sales, finance, and related industries — almost five times the direct employment of the mining sector, which so often monopolises the national conversation. Property pays more tax to federal and state coffers than mining. It is the engine room of the wealth effect that drives consumer confidence and spending. When property wobbles, the entire economy wobbles with it.

Against that backdrop, the May 2026 Budget chose to remove negative gearing from established residential properties purchased after Budget night, and to replace the 50% CGT discount with cost-base indexation and a 30% minimum tax from 1 July 2027. The government calls this fairness. I call it a misdiagnosis with dangerous consequences. Property price decline will have a material impact on the economy — and property investors play an important role in the ecosystem that policymakers appear to have discounted entirely.

The grandfathering trap

The policy is not just flawed — it is internally contradictory in a way that will actively make the rental market worse before it gets better.

Every property purchased before Budget night is grandfathered: those investors keep their full negative gearing and CGT discount until they sell. The rational response for any existing investor is simple — hold. Do not sell. Reduce supply to the rental pool, constrain transaction volumes, and wait.

This is not a theory. It is basic human behaviour in response to a tax incentive. The government has accidentally engineered a supply freeze in the exact segment of the market — established residential rental property — where supply is most needed. Fewer transactions means less stamp duty revenue for state governments. Fewer rental listings means higher rents. Higher rents feed directly back into CPI, which remains the RBA’s primary concern and the justification for a cash rate that is now back at 4.35%.

The government is, in effect, using one hand to fight inflation and with the other hand, fuelling it.

Who actually invests in residential property?

Here is the detail that gets lost in the politics of this debate. According to ATO data, 71% of property investors own exactly one investment property. These are not the super-wealthy using a labyrinthine tax structure to accumulate portfolios. These are teachers, nurses, police officers, and small business owners who saved enough to buy one additional property as part of their retirement plan.

For this cohort, the investment property is not a luxury. It is the mechanism by which ordinary Australians participate in their country’s infrastructure. It is the tangible, understood, and historically reliable way to build intergenerational wealth when compulsory superannuation alone is insufficient. Removing the tax incentive that made this viable does not hurt a faceless property mogul. It pulls the ladder up on the nurse in Parramatta.

The deeper inequity is who benefits from their exit.

Property investors not to blame for affordability

It is true that since negative gearing and capital gains tax concessions were introduced, housing affordability has declined significantly. These incentives may have contributed by increasing investor demand — but they are not the primary cause.

Significant research by Ross Kendall and Peter Tulip — both senior economists at the RBA at the time of publication (RBA Research Discussion Paper, 2018) — quantified how planning and zoning restrictions raise prices above the marginal cost of supply. As of 2016, zoning raised detached house prices 73% above marginal cost in Sydney, 69% in Melbourne, 42% in Brisbane, and 54% in Perth. The principal drivers of affordability deterioration have been low interest rates over an extended period, high population growth, chronic under-supply, and restricted access to development-ready land. Tax incentives for private investors has not been main driving force for the affordability crises and price growth.

Punishing the private investor does not address any of these structural drivers. It simply removes the capital that historically kept the private rental market functioning.

Chart 1: National Housing Affordability: Dwelling to Value-to-Income Ratio (2004 - 2026)

Source: ANZ CoreLogic / Cotality Housing Affordability Reports; 2026 figure estimated from Q1 2026 dwelling value data

The build to rent imbalance no one is talking about

At the same time that the government is restricting tax benefits for the Australian mum-and-dad investor, it has created a materially superior tax environment for foreign institutional capital through Build-to-Rent (BTR).

Under the BTR framework, foreign institutional investors operating through a Managed Investment Trust (MIT) pay a withholding tax rate of just 15% on fund payments — down from 30%. They also benefit from an accelerated capital works deduction of 4% per year (compared to 2.5% previously), writing off construction costs over 25 years instead of 40. And crucially, BTR developments are explicitly exempt from the negative gearing restrictions announced in this Budget.

Table 1: Federal Tax Treatment — Australian Investor vs. Foreign BTR Institutional Investor

Source: ATO Build-to-Rent Development Tax Incentives; Baker McKenzie Budget Analysis May 2026; William Buck Federal Budget Analysis 2026.

“Every major state has handed foreign institutions a tax advantage unavailable to any Australian private investor.”

The asymmetry does not end at the federal level. At the state level, every major jurisdiction — NSW, Victoria, Queensland, Western Australia, and South Australia — has introduced additional BTR concessions that further widen the gap. These include 50% reductions in land tax, full exemptions from foreign investor surcharges, and exemptions from additional foreign acquirer duty. The Australian mum-and-dad investor receives none of these benefits.

Table 2: State & Territory Concessions — BTR (Foreign Institutional) vs. Australian Private Investor

Source: Revenue NSW; State Revenue Office Victoria; Queensland Revenue Office; KPMG BTR State Concessions Analysis; Johnson Winter Slattery BTR Update 2026; Clayton Utz State Budget Review 2025.

The cumulative picture is striking. A foreign institutional investor acquiring a BTR asset in NSW today benefits from: a 50% permanent reduction in land tax, a full exemption from the 5% foreign land tax surcharge, a full exemption from the 9% foreign surcharge purchaser duty, a 15% MIT withholding rate (versus the standard 30%), and accelerated depreciation at 4% per annum. They are also exempt from the negative gearing abolition. The Australian private investor receives none of these benefits, and from 2027, loses the ones they had.

This is not solving the housing crisis. It is transferring ownership of it — from Australians to offshore institutional capital, with profits repatriated abroad and an accumulating tax advantage that no private Australian investor can match.

The unintended consequences are already in the credit cycle

What the modellers and Treasury economists consistently underestimate is the transmission through the credit cycle.

We are already seeing it at Major Banks are removing negative gearing from serviceability calculations for new investment property loans. In a falling market, lenders become less willing to support clients who are underwater, and less willing to extend credit to new investors whose cash flow projections no longer stack up without the tax benefit. The velocity of property transactions is already slowing — a direct consequence of policy uncertainty and reduced investor appetite.

This matters for state governments in ways that are rarely discussed. Transfer duty — stamp duty — is the single largest own-source revenue item for most state governments. NSW generates over $12 billion per year from transfer duty alone. Victoria, Queensland, and Western Australia rely on it to fund public infrastructure, health, and education. If transaction volumes fall by 15–20% as investor demand retreats and market confidence weakens, the revenue impact on state budgets is not marginal — it is a structural hole.

A slowdown in property transactions does not only impact stamp duty. It flows through to GST on new builds, payroll tax on construction workers, and land tax assessments. The multiplier effect of property on state government revenue has been chronically underappreciated, and the federal government has made a decision with enormous state fiscal consequences without, it appears, adequately consulting those who bear them.

The 95% loan trap

There is one more element of this Budget that genuinely concerns me, and it sits on the other side of the ledger.

The government has expanded access to first-home buyer deposit guarantee schemes, allowing eligible buyers to purchase with a 5% deposit guaranteed by the Commonwealth. The intention is benign — help young Australians into the market. The reality is that in a market already showing signs of correction, thousands of buyers are being lured into 95% loan-to-value mortgages at the top of an uncertain cycle. According to Housing Australia 300,000 applications have been sought.

If property prices in Sydney and Melbourne decline 10–15% from peak — which is already occurring in some segments — a buyer who entered on a 5% deposit has immediate negative equity. They become prisoners of their mortgage. They cannot sell without crystallising a loss they cannot afford to absorb. The taxpayer guarantees their loan. The bank is protected. The buyer is trapped.

This is not intergenerational wealth creation. It is an intergenerational debt obligation. I would never advise my own children to borrow at 95% LVR — that goes against thirty years of working with debt. The fact that the government is actively encouraging this level of leverage is, at the very least, irresponsible.

Where this leaves investors

In the near term, capital reallocation across the investment landscape appears rational and unsurprising given the policy environment. A number of investors appear to be increasing weightings toward income-generating assets while the medium-term outlook — both policy and market — becomes clearer.

On the property market itself, a disorderly correction appears unlikely given property’s structural importance to household wealth and state government revenue. But we are in a period of genuine adjustment — and the Budget has extended the duration of that adjustment.

The government had a genuine opportunity to address the housing crisis by incentivising supply, reforming planning, and reducing construction costs. Instead, it chose Robin Hood politics. The optics are appealing. The economics are not.

Every Australian will feel the consequences — in higher rents, slower wealth creation, and a future where large portions of Australia’s rental stock are owned by offshore institutions extracting returns from tenants who were, once, able to aspire to ownership of their own.