'It's just not worth it': Financial expert on Labor's housing changes | Sunrise

It's been a massive week for Australians after the Federal Government unveiled major property reforms in the 2026 Federal Budget, with cost of living the key priority.

Negative gearing and capital gains tax were some of the biggest headlines this week.So as the budget dust settles, we just wanted to break down for you exactly what it means for you and your family and how you should plan for the future.For more, we're joined now live by the founder of Fortlake Asset Management, Dr Christian Bayliss.Good morning to you, Christian.It's a Saturday, so people are busy getting out to kids sport and things, but... might be able to just digest this.Let's just go back to basis.

Start with negative gearing.What is it?How does it affect people?

Yes, I think it's really worthwhile just going to simple stylized examples.There can be variations on these types of things which tend to complicate the broader message.But the simple thing is the way that negative gearing works.It's a bit like think of it like a business.Would you buy a business that's losing money or making money with negative gearing?Basically, what it is is as an investor, you will borrow money to go buy a house, with that house you expect to get a rental yield from it.

If the costs of borrowing are higher than the rental yield, that means you're negatively geared, basically meaning you're running your business at a loss, so basically your interest costs exceed your rental income.Now you can take that loss and apply it against your salary or your income in other areas.So if you earn $50 ,000 a year and you had a $10 ,000 loss on your house, you can reduce your taxable income from $50 ,000 to $40 ,000.So you can basically go to the tax man. reduce your taxable income with that housing loss.That's being abolished now.So it will still be applicable to new investors who are building houses but that old rule.

So basically the government is not underwriting those losses for investors anymore and what that means is that means investors will step out of the market knowing that they don't have that safety blanket anymore and it's ultimately going to push up rental prices in my view.

I was just about to say that.It seems there's a lot of fallout.A lot of small business owners are really concerned about this.Their speculation rents will increase by as much as 20 per cent.In regards to these proposals, I think the majority of the people just think that there should be a limit.So what about the concept of saying, okay, we means test these tax concessions, and also you're okay to negatively gear one property, but that's enough.

Would that have been a better proposal?

Oh look, I think that probably would have been a better proposal to give some people the benefit of doing that.So you're basically trying to eliminate the people that are abusing the system, i .e.the people with 15 to 20 negatively geared properties.I think that's really what you're trying to use policy to eradicate that type of abuse in the system.That's fine.

I think that would have been good to do, but there are ultimately going to be people who unfortunately find themselves Because let's take the example of not being able to find a tenant for two years and you start to run at a loss.That's going to be a real big issue for new people because if you just can't find someone to rent your house you're just going to be running at a loss and that will be quite painful.

who it impacts.

Yeah, so I think this one's an abomination.The capital gains tax.There is just absolutely no incentive in my view to start up a business with all the risks that you take.You throw your family under a bus, you put yourself under a bus and then you ultimately get nothing out of it under this CGT ruling I think.So the way this works is let's just say you buy a house or a business for $500 ,000 and let's just say in seven years it's worth a million dollars.$250 ,000 of that will be inflation, so you get none of that because people need to realise that inflation is a tax.

So $250 ,000 of that $500 ,000 you've made is inflated away, you don't make any money.The tax man then says, okay, so you've got $250 ,000 left, the top marginal tax rate, I'm going to take $117 ,000 of that $250 ,000 and I'm going to leave you with $132 ,000.So after that $500 ,000 gain of taking all that risk for seven years, you come away with about $130 ,000,000.It's just not worth it.I look at them and go, you can't justify going out and taking that risk anymore.

OK, so it's there now, right?So for those people who might know someone who is in the market to buy a house for the first time, or they might be in the market to buy a house for the first time, how do we take all this information and make it work for us?

Well, so let's be clear.So homeowners, none of this affects them.So the zero CGT rule still sits with us.So that is why people's homes have been going up forever and a day, because it is the only place that you can basically be without being taxed in the family home.So that is the major store of wealth for most people and it probably will continue to be more so now because there are taxes everywhere you look.Everything you, you know, your income taxes, everything, there's taxes everywhere.

So that's the best place to be in the family home.

Christian, final quick question.Everyone says that this is going to solve the housing crisis from both sides of government.Quickly, Are these current proposals with this tax reform going to actually make homes more affordable?

Well, you've got to look at the whole picture here.In and of itself, the policies will reduce investor demand.In my view, that's going to be a problem for renters.So I actually think this is going to create a rental issue.We've only got 1 .7 per cent of the housing stock is available for rent, we've got interest rates going up, we've got levies and taxes out the wazoo that basically make this very expensive.So you think about these people, they're just going to keep pushing rents up and they've got interest rate increases, more of those coming through the pike as well.

So that is ultimately going to get passed on to renters.So I think renters are going to really feel this, and I think there's going to be more of a downward pressure on property prices.But the issue is on the other side, you've got 320 -odd thousand people coming into the country, and you've got to think about that as well.So you can't look at one policy, you've got to look at the whole picture and say, what are we actually doing to properly calibrate this?of this?

Yep.Christian Ballas, thank you so much.There's going to be lots of discussion about this, but well done being the only person that's got out the wazoo.Economic term put into a conversation.Thank you.It's a technical term.