Are Labor's negative gearing changes behind falling house prices?

Updated 3 November 2026 with the latest figures.

On budget night, 12 May, the Treasurer ended negative gearing for established homes bought from then on, and set the capital gains discount to end in July 2027 (ABC). By 31 October, national home values sat 6.7% below their March peak after seven straight monthly falls (Cotality). Sydney is down 10.1% from its February peak.

Values fell 1.2% in October alone. Homes now take a median 39 days to sell in the capitals, the longest since August 2020 (Cotality).

The timing invites an easy story: Labor changed the tax rules, and prices fell. Shadow Treasurer Tim Wilson opposed the changes, and investor groups warned of an exodus.

If the tax changes are the cause, the fix is political. If rates are the cause, the fix sits with the Reserve Bank. So which is it?

Mostly rates. On 3 November the Reserve Bank lifted the cash rate to 4.85%, its fifth rise of 2026 and the highest since 2008 (ABC). Its own research suggests that hit outweighs the tax changes several times over. Confidence: Likely.

National values peaked in March and Sydney in February, both before anyone saw the budget papers (Cotality). The Reserve Bank had already raised rates on 3 February and again in March (CommBank, Savings.com.au).

Elsewhere it is messier. Brisbane and Adelaide peaked in May, the month of both the budget and a third rate rise. Perth peaked in April.

So timing alone cannot clear the budget. It does rule out the simplest version of the story, because the biggest market turned first.

Cotality's Tim Lawless now describes buyers as "noticeably absent", citing low confidence and serviceability barriers (Cotality). The next question is how big each hit should be.

Treasury's own costing says the tax changes slow price growth by about 2% over a couple of years (ABC). Independent estimates run from about 1% (Grattan Institute's Matthew Bowes) to 3% (CBA's Trent Saunders). AMP's Shane Oliver went up to 5% in the short run (ABC).

Now the rates side. A 2019 Reserve Bank model by Trent Saunders and Peter Tulip found a one-point rate cut lifts prices about 8% after two years (RBA). Run it in reverse for this year's 1.25-point rise, and you get roughly 10% off prices within two years.

On our maths, that leaves the tax changes with about a tenth to a third of the combined hit, and a sixth on Treasury's figure. The two models measure different things and do not add neatly, so treat these shares as a rough guide.

Rates may not be done. Annual inflation hit 4.3% in the year to September, the ABS reported on 28 October, with housing the biggest contributor (ABS).

The tax change shows up clearly in lending. New investor loans fell 8.6% in the June quarter, against 3.3% for owner-occupiers (ABS). A Treasury FOI briefing shows 21% of investor loans went to new builds, a six-year high (Treasury).

What the data does not show is a fire sale. Cotality says fresh listings in October ran almost 18% below average (Cotality). Total listings are high because homes sit unsold, not because owners rushed to list.

That fits the design: existing investors keep their old tax treatment. Shane Martin, a Zeally Finance director, told AAP that the budget "changed a lot" of investors' plans (AAP).

Changed plans mean fewer buyers. They do not mean more sellers.

The hit is also softer than it sounds. e61 Institute modelling of 920,000 past investments found 43% of investors would have paid less tax under the new rules (ABC).

Shane Oliver at AMP makes the strongest case that tax matters more than Treasury admits. He expects a 10% to 15% fall, saying investors will sensibly wait for lower prices or higher rents (MPA). CBA now expects a peak-to-trough fall of about 14% (ABC).

There is a tax fingerprint, too. Ray White's Nerida Conisbee found cheaper homes, where investors cluster, have fallen faster than dearer ones since the budget, reversing the pattern from January (MPA). A survey by investor advisers' body PIPA found 18.3% of investors sold at least one property in the year to August (Domain).

But PIPA did not publish its sample, and listings data shows no rush to sell. Housing Minister Clare O'Neil said in May the tax changes would not be "the main driver" of any fall (ABC). The data so far backs her, though she has an obvious interest.

Every split here is a model, because nobody can see a no-budget Australia. HIA's Tim Reardon says the combined effect of rates and taxes is clear, but the share of each is not (HIA). The verdict rests on one assumption: that rate rises bite about as hard as rate cuts helped.

New Zealand offers a warning. It removed interest deductions for investors in 2021, and Westpac forecast prices about 10% lower over time (Westpac NZ). Prices then fell about 15% from the November 2021 peak while rates rose (NZ Adviser), and economists there still argue over the split.

Rate rises are doing most of the work in this downturn, and the tax changes add a smaller push by keeping new investors away. Confidence: Likely. First home buyers face fewer investor rivals; recent buyers with small deposits and builders carry the risk.

This piece draws on 26 sources: official data from the ABS, Treasury, Reserve Bank and Cotality; a Reserve Bank research paper; e61 Institute and Ray White research; original reporting from the ABC, AAP, MPA and Domain; and New Zealand evidence. We could not verify PIPA's survey method. Our split of the hit applies the RBA's 2019 rate estimate in reverse to this year's 1.25-point rise and compares it with published tax estimates of 1% to 5%; the two models are not strictly additive. Updated on 3 November 2026 with Cotality's November index, the September quarter CPI and the Reserve Bank's 3 November decision. Researched with AI tools; checked and edited by VOID.

House prices have dropped almost 7% since March, and lots of people blame Labor's changes to negative gearing. But prices started falling before the budget, right after the Reserve Bank began raising rates, and the RBA's own research says this year's five rate rises should hurt prices far more than the tax changes. The tax changes have scared off new investors, but existing ones aren't dumping homes, so rates are the bigger story.