Most property investors in Australia are likely to pay less capital gains tax under the federal Labor government’s recent budget reforms, according to new analysis based on historical data. The research, conducted by the e61 Institute, indicates that the reforms’ impact on landlords may be more modest than widely perceived.

The study examined property investment trends from 2008 to 2025, assessing how the reforms would have affected tax liabilities if implemented throughout that period. It found that 53% of housing investors would have paid more tax overall, while 43% would have paid less. Importantly, half of all landlords would not have experienced increased costs from the removal of negative gearing on existing properties, suggesting factors beyond the reforms contribute to recent declines in investment demand.

Dr. Nick Garvin, co-author of the analysis, stated that public discourse since the May budget has exaggerated the financial burden on investors. “The effect on investors is probably not nearly as bad as what’s being made out,” he said, noting that an approximately even split between investors who gain or lose implies the reforms alone may not strongly influence investment decisions.

Despite these findings, market data illustrates a tangible shift in investment activity. Following the budget announcement, new investor loan applications at the Commonwealth Bank fell by 28% within two months, and growth in investor credit slowed significantly by July. Reserve Bank Governor Michele Bullock acknowledged on Tuesday that the reforms have “very directly” affected the market, noting a substantial drop in investor loan applications and a changed dynamic around housing investment.

The e61 analysis suggests the reforms impose only a slight increase in investment costs, indicating other factors are influencing recent investor behavior. Rising interest rates throughout 2026—amid expectations of further hikes—have amplified the cost pressures facing property investors.

Garvin argued that some commentators may have misjudged the reforms’ impact by overestimating typical investor capital gains on property sales. The median home in the study achieved an average annual capital gain of 3.3% after sales costs, closely aligned with average inflation of about 3% per year over the period. Under the new system, only around a tenth of this median gain would be taxable, compared to a larger discount allowance under the former regime. This could make the reforms relatively beneficial for certain investors, especially those focused on long-term capital growth.

The reforms restrict negative gearing to newly constructed homes going forward, while existing property owners can still offset rental losses against future capital gains tax liabilities. Garvin noted that many investors relying on annual tax refunds from negative gearing may have been caught off guard by the changes, contributing to the sharp decline in investor appetite. He suggested some reaction was “irrational,” reflecting misunderstanding of the ongoing ability to claim losses upon sale.

Economist Dr. Peter Tulip highlighted that the reforms might make housing a safer investment by reducing the variability of returns. With lower gains taxed less and higher gains taxed more, investors prioritizing capital growth might find property more predictable despite tighter annual cash flows.

The government maintains the tax changes aim to create a fairer and more neutral system, addressing previous imbalances in who benefited from negative gearing. However, opposition figures caution that increased investor costs could drive up rents and reduce rental housing supply.

In summary, while investment activity has declined sharply since the budget, analysis suggests the reforms’ direct tax effects on property investors may be less significant than the broader economic environment, including rising interest rates and possible misconceptions about the new rules.