Two major industry groups have called for the federal government to pause and reopen consultation on proposed negative gearing and capital gains tax changes, arguing the draft legislation risks freezing investment in housing types the government itself says are critical to meeting supply targets.
The Property Council submitted to Treasury that the current exposure draft will discourage investment in build-to-rent apartments, master-planned communities, retirement villages and student accommodation, all housing categories that feed into the National Cabinet’s 1.2 million homes by 2029 target. The Mortgage & Finance Association lodged a parallel submission calling for clearer guidance and worked examples ahead of the 1 July 2027 start date.
What the draft laws do and what they leave out
The proposed reforms tighten negative gearing rules and adjust CGT treatment for investment properties. The stated aim is to improve housing affordability by reducing tax incentives for speculative property investment. Treasury released exposure drafts for consultation earlier this year.
Industry submissions argue the drafts fail to account for the diversity of housing development models. Build-to-rent projects, which rely on long-term cashflow rather than capital appreciation, face uncertainty over how the new rules apply across their development lifecycle. Retirement villages and student housing, both classed as investment property but with different risk profiles and holding periods, are not explicitly carved out or addressed.
The government has not released modelling that shows whether the reforms account for supply-side effects, or whether Treasury’s analysis focused solely on revenue and direct affordability impacts. Without that visibility, developers and financiers cannot pressure-test their own assumptions about which projects remain viable under the new settings.
The supply mechanics and where the friction sits
Master-planned communities, build-to-rent and retirement villages are capital-intensive, long-gestation projects that require stable tax settings to secure financing. Changes to negative gearing and CGT alter the after-tax return profile, which flows through to both developer equity commitments and bank appetite for construction debt.
Build-to-rent in particular operates on narrow margins. Projects are underwritten on rental yield rather than exit value, so any erosion of net income from tax changes directly affects feasibility. If the draft rules do not provide certainty on how losses are treated during the construction and lease-up phase, developers may delay or shelve projects rather than commit capital under unclear rules.
Retirement villages and student accommodation sit in a similar position: both are classed as investment property, but neither competes directly with owner-occupier housing. Applying blanket negative gearing changes without carve-outs may deter investment in segments that increase total housing supply without displacing first-home buyers.
The industry bodies are asking for ministerial relief powers, essentially a mechanism to fix unintended consequences without waiting for new legislation, and a statutory review after two years. Both measures would reduce the risk of projects stalling while Parliament works through amendments.
Risks to watch and what determines the outcome
The biggest risk is that the government proceeds with the draft as written, either because it judges the supply effects to be manageable or because it prioritises the revenue and affordability optics over developer sentiment. If that happens, expect a wave of deferred or downsized projects in the build-to-rent and retirement village segments, with the impact visible in development application volumes and construction starts over the next 12 to 18 months.
The second risk is that Treasury runs a second consultation but makes only minor adjustments, leaving the core uncertainty in place. That outcome would be worse than no change at all, because it would signal that the government heard the concerns but chose not to address them, removing any incentive for developers to wait for clarity.
The upside scenario is that Treasury reopens consultation, provides explicit carve-outs or transitional relief for long-gestation projects, and includes worked examples that show how the rules apply to build-to-rent and retirement villages. That would not eliminate the tax impact, but it would give developers enough certainty to model the new settings and adjust their pipelines accordingly.
The government has not yet responded to either submission. The 1 July 2027 commencement date gives Treasury 18 months to finalise the rules, which is tight for a policy that affects multi-year development cycles. If the government wants the reforms to land without stalling supply, it needs to close the loop on these submissions within the next quarter.
The catch
The reforms are designed to improve affordability by reducing investor competition for existing housing stock. But if they also reduce investment in new housing stock, particularly in segments like build-to-rent and retirement villages that do not compete with first-home buyers, the net effect on affordability could be zero or negative. The government has not said whether its modelling accounts for that trade-off, which means the reforms could overshoot on revenue and undershoot on supply.
What happens next and what to watch
Treasury will either respond to the submissions with amendments and a second consultation, or it will proceed to finalise the legislation without further input. The timeline matters: developers making capital allocation decisions over the next six months need to know whether the rules will include relief mechanisms or whether they should assume the draft settings are final.
Watch for three signals. First, whether Treasury releases any supply-impact modelling or commentary that addresses the specific housing types named in the submissions. Second, whether the government commits to ministerial relief powers or a statutory review, both are low-cost concessions that would reduce investment risk without materially weakening the reforms. Third, whether development application volumes for build-to-rent and retirement village projects start to decline in the second half of this year, which would indicate developers are already pulling back in anticipation of the new rules.
For context on how supply bottlenecks interact with other constraints, see WA planning reforms land $29.8m, but will they clear the real bottleneck? and Church land development Sydney: the supply unlock no one’s pricing in. For how investor retreat is already reshaping buyer composition, see First home buyer loans rising as investors retreat: what’s driving it.
If you are a developer or financier with exposure to build-to-rent or retirement villages, the practical step is to model your pipeline under both the draft rules and a scenario where relief is granted, then assign probabilities to each. Do not assume Treasury will reopen consultation simply because industry asked for it, plan for the draft to become law as written, and treat any amendments as upside.
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General info, not financial advice.
