“The net effect is a wash.” That was Cameron Murray’s verdict on the idea that Australia’s new housing tax rules push investors toward the regions. Murray, chief economist at Fresh Economic Thinking, was answering a claim made by other economists in a News Corp report published on June 28, 2026.
The claim goes like this. The tax changes announced in the federal budget on May 12 end negative gearing for most new purchases. An investment property bought after 7.30pm that night cannot be negatively geared from July 1, 2027, unless the home is newly built. Investors who already negatively gear keep the break. The same package cuts the capital gains tax discount.
The case for the regions
REA Group economist Luc Redman said the changes “provide a slightly more favourable opportunity for regional property relative to metro”. Mining and farm towns have long paid higher rental yields to owners who borrowed to buy, he said, because transient workers pay relatively high rents against the price of a house. With loan losses no longer deductible, those yields become harder to ignore.
Houses in the regions typically rise in value more slowly, so a smaller capital gains discount stings metro owners more. Redman said the other side of the trade is risk. Anyone wanting to negatively gear in future must start with a new home, and doing that out in the regions is the riskier bet. Returns depend on future demand to live there, “which would mean the area has a strong industry underpinning or lifestyle attractiveness”.
The case against
Murray was not persuaded. Regional housing pays higher rent yields because owning in the country is riskier, he said, and the tax changes would hit city and regional investors in proportion. Any shift toward new homes would have to happen where new homes are common, and historically that means the cities. He also pointed to a pandemic-era trend running backward: “Given the Covid-era flight from cities is reversing a touch now, I don’t think there is much market demand for more new homes in the regions – except in special circumstances where there are local resource booms.”
The numbers on that flight are stark. Australian Bureau of Statistics figures show regional Australia gained 43,000 people in 2020, and about 86,000 left Sydney between June 2020 and June 2022. Another 60,000 left Melbourne over the same period.
Peter Tulip of The Centre for Independent Studies sat between the two camps. The capital gains change marginally favours regional investors, he said, but “the difference is small”. High-yield country properties are less exposed than city properties that depend on capital gains.
Supply is the bottleneck
Grattan Institute associate Ashleigh Chang argued the real brake is not investor appetite. “In many regional areas the binding constraint to supply doesn’t seem to be investor appetite – it’s that we’ve made it too hard to build,” she said. Council zoning rules are a stubborn hurdle in regional centres. If planning systems keep choking off new supply, she said, the “buy new and hold for yield” route is “actually harder in the regions, not easier”. She wants regional councils to zone for denser homes in town centres, release more land on the edge of town and stop a small number of objectors from stalling approved projects for months.
Housing Minister Clare O’Neil said in the same week that the housing market was making a “correction” as auction clearance rates plummeted and values sank.
