Is the government going to get rid of negative gearing in next week’s budget?  Maybe, but experts reckon if they do it won’t be for all properties and even then many would be be ”grandfathered” – if you’re claiming it now, you can continue to do so until you sell.

The most likely scenario would be if the government cancelled negative gearing for existing apartments  but not for new ones.

It’s too complicated for our little brains – and our economics experts are busy becoming billionnaires – so we asked two AI platforms what it would do the price of apartments. This is what they said:

Claude.ai (Anthropic).

This scenario where negative gearing is fully removed for existing properties but retained for new builds — essentially directing investor capital toward new construction, is the classic Labor 2016/2019 model, and it’s the one with the most modelling behind it.

The consensus from serious modelling is surprisingly consistent:

Treasury’s own advice confirmed Grattan Institute research showing that abolishing negative gearing and halving the CGT discount would leave house prices roughly 2% lower than otherwise. Even in apartment markets dominated by investors, Grattan found the maximum rational price impact shouldn’t exceed 3 to 4%.

Other estimates sit in a similar range — the ANU put the effect at 1.5%, while economist Gene Tunny estimated it at 4%.

So for Sydney apartments at a median around $900,000, you’re looking at perhaps $18,000 to $36,000 off the median — significant but hardly a crash.

But here’s the bit that’s particularly relevant for strata, Jimmy. The “new builds only” approach creates a specific distortion that Grattan’s John Daley flagged: new properties would end up priced higher than older ones, with investors disproportionately showing up to auctions for new housing and owner-occupiers disproportionately competing for established stock.

For apartments, that’s a fascinating split. It would mean:

New apartment developments could actually see prices supported or even pushed up, because they become the only game in town for investors wanting to negatively gear. Developers would love this — it’s effectively a government subsidy for off-the-plan sales.

Existing apartments in strata schemes would face a modest price dip as investor demand shifts away. But “modest” is the key word — Grattan’s analysis was that with tight constraints on land supply, most of the impact would be felt through lower land prices rather than dwelling prices, and the effects would be small compared to factors like interest rates.

The strata-specific wrinkle is that a lot of existing apartment investors aren’t negatively geared anyway — particularly those who bought more than five or ten years ago and have seen rents rise while their mortgages stayed fixed or were paid down. The ones who are heavily negatively geared tend to be recent buyers in newer, more expensive buildings. So the grandfathering provision would shield a big chunk of the existing investor base.

The property industry’s counter-argument, backed by Deloitte modelling, is that negative gearing changes would shrink new housing starts by about 4% — which in the current environment where we’re already building about 160,000 homes against a target of 240,000 would make the supply crunch worse. That’s the tension: slightly more affordable existing apartments, but fewer new ones coming through the pipeline.

The honest answer is that interest rate movements and supply constraints dwarf the effect of negative gearing changes on apartment prices. The RBA’s decisions matter far more to the median apartment buyer than anything the budget does to negative gearing.

Chat-GPT

We asked Chat-GPT the same question – the answer was similar.

If Australia cancelled negative gearing for existing properties but kept it for new builds, apartment prices would probably split into two very different markets:

• Established apartments would likely soften in price, especially investor-heavy stock.
• New apartments would probably become more expensive and more plentiful.

The size of the effect depends on how the policy is designed (grandfathering, CGT changes, timing, exemptions, interest rates), but most economists and property analysts broadly expect that kind of divergence.

Here’s the likely chain reaction.

1. Existing apartment prices would probably fall modestly

Negative gearing mainly increases the attractiveness of buying investment property because losses can offset taxable income.

If investors lose that tax benefit on established apartments:

• fewer investors bid on existing units
• owner-occupiers face less competition
• yields become more important than speculative capital growth
• lower-quality or oversupplied apartments become less attractive

That tends to reduce prices.

Most modelling on broader negative gearing reform suggests:

• national dwelling prices might fall around 2–6%
• apartments could fall more than detached houses
• inner-city investor-heavy markets would be hit hardest (Property Council Australia)

Sydney and Melbourne apartments would probably see the biggest effect because those markets rely heavily on leveraged investors. Boutique owner-occupier apartments would likely hold up better than large investor-dominated towers.

2. New apartment prices would likely rise

If negative gearing remains available only for new builds, investors would be funnelled toward:

• off-the-plan apartments
• newly completed units
• build-to-rent projects
• townhouse developments

That creates a tax-driven premium for “new”.

So developers could:

• charge higher prices
• pre-sell projects more easily
• secure finance more easily because investor demand improves

In effect, the government would be redirecting investor demand away from existing stock and into construction. This is the core policy argument for “new-build-only” negative gearing: if tax concessions exist, they should create additional housing supply rather than inflate prices of existing homes.

Research and commentary from AHURI, the RBA and multiple policy groups suggest current negative gearing settings mostly stimulate demand for existing dwellings rather than new supply. (Ausfirst Lending Group)

3. More apartments would probably get built — but not everywhere

You’d likely see:

• more high-density projects
• more investor-targeted apartment developments
• more medium-density infill projects

Especially in:

• outer suburban growth corridors
• transport hubs
• urban renewal zones

But there are constraints:

• planning approvals
• construction costs
• labour shortages
• developer financing
• feasibility margins

So the policy would help supply, but wouldn’t suddenly solve the housing crisis on its own.

The RBA has repeatedly pointed to zoning and planning restrictions as major drivers of apartment shortages and prices. (Reserve Bank of Australia)

4. Rents would probably rise in some areas and stabilise in others

This is the most disputed part.

Critics argue:

• investors would dump established rentals
• rental supply would tighten
• rents could spike, especially in inner suburbs (The Courier Mail)

Supporters argue:

• many sold investment properties become owner-occupied homes
• that reduces renter demand at the same time
• extra new construction eventually adds rental supply

The likely reality is:

• short-term disruption
• uneven outcomes geographically

Areas with limited new construction capacity — established inner suburbs especially — could see tighter rental markets.

Areas with lots of apartment construction might eventually see improved supply.

5. The apartment market would become more segmented

You’d probably end up with three distinct categories:

That could create odd distortions where:

• a brand-new apartment sells at a premium because of tax treatment
• nearly identical 5-year-old apartments trade cheaper

Australia already sees smaller versions of this effect because depreciation benefits favour newer stock. (Apartments.com.au)

6. First-home buyers would probably benefit most in the established unit market

The biggest winners would likely be:

• first-home buyers
• owner-occupiers buying established apartments

because they would face less investor competition.

That’s particularly true in:

• Sydney inner-ring units
• Melbourne apartments
• investor-heavy precincts near universities and CBDs

The policy is essentially trying to shift:

• investors → new housing
• owner-occupiers → existing housing

That’s why many housing economists see it as more rational than the current system, even if it creates some short-term disruption.

Overall, if this policy happened tomorrow, the most likely medium-term outcome would be:

• established apartment prices: slightly down
• new apartment prices: up
• apartment construction: up somewhat
• rents: mixed, with short-term pressure
• first-home buyer access to older apartments: better

The effect would probably be meaningful, but not revolutionary, because Australia’s housing affordability problem is also heavily driven by:

• population growth
• planning restrictions
• infrastructure bottlenecks
• construction costs
• low vacancy rates
• credit availability. (Reserve Bank of Australia)