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Tax reforms to dent prices short-term, but rebound locked in for 2027
Australia’s housing market is forecasted to rebound in 2027 despite negative gearing and capital gains tax changes, with the reforms to have only a modest impact on prices
Despite cutting its 2026 dwelling price forecast to flat growth, Commonwealth Bank (CBA) said it expected lower interest rates and housing undersupply to drive a recovery in 2027.
In a new analysis, CBA senior economist Trent Saunders said the market would recover next year, driven by persistent housing undersupply, high demand, and potential rate cuts.
Following the tax reforms, CBA revised its housing outlook, with prices to remain flat through 2026 as auction clearance rates continue to fall, properties remain on the market longer, and transaction activity slows.
“The market response to the housing tax changes has been quick and suggests the near-term response will be larger than expected. The tax changes have accelerated a slowdown that was already underway,” Saunders said.
While the bank now expects dwelling values to settle slightly below 5 per cent lower than they otherwise would have, Saunders said the market was unlikely to remain subdued for long.
“Still, we do not expect the weakness to persist beyond the end of this year, with home price growth to pick up to 3 per cent over the year to December 2027.”
Saunders said a recovery in dwelling prices would likely occur in 2027, supported by lower interest rates, improving affordability, and persistent housing undersupply.
He said the bank expected the Reserve Bank of Australia (RBA) to begin easing monetary policy next year, with cash rate cuts forecast in May and August.
“A key support is our expectation that the RBA will start easing monetary policy in 2027, with cash rate cuts expected in May and August 2027.”
Additionally, he said lower prices would ease borrowing constraints and improve rental yields, helping attract investors back into the market.
“The market will also receive support from strong first home buyer demand and ongoing housing undersupply.”
Currently, Saunders said investors were likely to feel the changes more acutely in the short term as negative gearing has traditionally helped offset annual holding costs and carry losses forward.
The bank also expects this year’s lending activity to weaken as investors reassess opportunities in the established housing market.
Despite the slowdown, Saunders said the housing tax changes were unlikely to fundamentally alter the long-term trajectory of Australia’s property market.
He said that, over the long term, the bank forecast that the housing tax policy changes would prompt a one-off adjustment in prices.
“The changes to negative gearing and capital gains tax (CGT) for housing are likely to have a fairly modest long-run impact on the level of prices, relative to other key drivers of the housing market.”
“Once prices have reset to this lower level, growth is expected to return to broadly the same trajectory it would have followed without the policy changes.”
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