Executive summary
Australia’s housing system is producing a widening intergenerational divide.
The divide is not merely between older owners and younger non-owners. It is between those who hold scarce, well-located land and those who must now buy, rent or wait in a market where the price of access has detached from wages. Home ownership among younger cohorts has fallen sharply, rental stress has worsened, deposits take longer to save, social housing has declined as a share of households, and many households now rely on family wealth rather than earnings to enter ownership.
Prosper Australia submits that the Committee should treat intergenerational housing inequity as a land and tax problem, not just a construction problem. Australia needs more homes, especially well-located and genuinely affordable homes. But additional zoning capacity will not, by itself, deliver equity if the gains from public decisions and community growth are privately capitalised into land prices, investors are tax-preferred over first home buyers, vacant and under-used dwellings can be profitably withheld, and governments continue to rely on transaction taxes while leaving land rent lightly taxed.
The central policy objective should be to make housing less attractive as a tax-preferred vehicle for storing unearned capital gains and more available as a place to live. This requires shifting revenue away from labour, transactions, and productive investment and towards the economic rent embedded in land values. It also requires converting publicly created land-value uplift into public revenue, rather than allowing planning decisions, infrastructure investments, and population growth to become private windfalls.
The submission therefore recommends a coordinated reform package including:
- State and territory replacement of stamp duties with broad-based land value taxation;
- Reform of the CGT discount and negative gearing as they apply to residential investment property;
- stronger capture of rezoning and infrastructure windfalls, and
- Greater investment in social, community and third-market housing.
Recommendations
Recommendation 1: Shift state revenue from stamp duty to broad-based land value taxation. The Commonwealth should negotiate incentive payments with states and territories to replace stamp duty with broad, annual land value charges.
Recommendation 2: Capture rezoning and infrastructure windfalls. Planning permissions and public infrastructure create valuable development rights. Governments should price those rights through rezoning uplift charges, betterment levies, infrastructure-beneficiary charges or auctions of development rights, with revenues transparently hypothecated to enabling infrastructure and affordable housing.
Recommendation 3: The Government should not pursue a carve-out from its negative gearing and CGT reforms for“new” housing. The weight of international evidence suggests that “new housing” carve-outs are a poor substitute for broad-based tax reform: they create tax shelters for high-income investors, worsen administrative complexity and compliance costs, and are likely to be capitalised into higher land prices rather than materially improving affordability.
Recommendation 4: Treat housing windfalls more consistently across life and death. The Committee should examine deemed realisation at death, with rollovers and deferrals for illiquid estates, so that unrealised gains on land are not permanently washed through intergenerational transfer.
Recommendation 5: Expand non-market and third-market housing. A share of land-rent and uplift-capture revenue should be dedicated to public, community, cooperative and community land trust housing. Public land should be leased, not sold, where possible, so affordability is preserved over time.
Recommendation 6: Avoid demand subsidies that capitalise into prices. First home buyer grants, deposit guarantees, and investor concessions should be avoided as they tend to capitalise into higher land values rather than result in new housing supply, or lower land prices.
1. The extent and nature of intergenerational housing inequity
The best way to understand intergenerational housing inequity is to look across tenures. For older owner-occupiers, housing has often provided secure tenure, capital gains exemptions, and a store of retirement wealth. For younger households, the same system increasingly presents as higher entry prices, larger deposits, higher debt-to-income ratios, insecure rental tenure, and the need for parental assistance. For lower-income households, the pathway is often neither ownership nor stable renting, but prolonged exposure to rental stress, overcrowding, homelessness services or social-housing waiting lists.
The National Housing Supply and Affordability Council’s 2026 State of the Housing System report records that the time for a median-income household to save a 20 per cent deposit rose from 9.0 years in 2015 to 11.2 years in 2025, while the national dwelling price-to-income ratio rose to 8.4. It also reports a record advertised rent-to-income ratio of 33.1 per cent in 2025, and notes that only 15 per cent of home sales were affordable to a median-income household in 2024-25. They show a structural deterioration in the ability of wages to purchase access to land and housing.1
Home ownership data show the cohort nature of the problem. Australia Institute of Health & Wellbeing (AIHW) analysis of Census data reports that home ownership among 30-34 year olds fell from 64 per cent in 1971 to 50 per cent in 2021; among 25-29 year olds, it fell from 50 per cent to 36 per cent.2
The decline in ownership is not merely a private disappointment. It redistributes security, opportunity, and risk. Owners have greater control over location, school catchments, dwelling modification, forced moves, and retirement costs. Renters face greater exposure to rent rises, eviction, mobility costs, and poorer-quality housing. Those who cannot access either stable ownership or secure rental housing face the most acute form of inequity: homelessness or crisis accommodation.
The intergenerational dimension is reinforced by inheritance. When access to ownership depends increasingly on family wealth, the housing system ceases to be a broad pathway to security through work and saving. It becomes a mechanism for transmitting existing positions. A tax system that lightly taxes land-driven capital gains during life, exempts the family home, allows substantial intergenerational transfers, and taxes labour and other savings income heavily compounds this divide.
2. Causes of intergenerational housing inequity
Housing is an unusual asset because the land component is fixed, location-specific and heavily affected by collective decisions. A rezoning, train station, university, hospital, school catchment, employment cluster, or population boom can raise its value independent of the actions of its owner. When those gains accrue untaxed to existing landholders, they become capitalised into prices paid by the next generation. Younger households do not merely buy a structure; they buy out accumulated land rents created by society and left largely private by law.
These incentives show up in several ways. Some dwellings are left vacant or used only intermittently. Some larger homes are occupied by small households because the tax and transfer system often rewards holding valuable housing wealth while stamp duty penalises moving. Some developable land is released slowly because, once rezoned or approved, it becomes an appreciating option. Developers may maximise returns by staging lots or dwellings gradually, rather than bringing all possible supply to market as quickly as possible. This does not mean every delay is strategic: infrastructure, finance, labour, pre-sale requirements and market conditions all matter. But it shows why zoning capacity alone does not guarantee timely housing supply.
Australia has more information about this under-use than is often acknowledged. The 2021 Census recorded 1,043,776 unoccupied dwellings on Census night, although Census-night vacancy is a blunt measure and includes dwellings empty for ordinary transitional reasons.3 More targeted administrative data tell a sharper story. Prosper Australia’s 2025 Speculative Vacancies update uses average water usage over the 2024 calendar year to identify empty and under-used dwellings in metropolitan Melbourne. It found 31,890 dwellings were completely empty, while a further 69,055 were under-used, bringing total empty or under-used dwellings to 100,945, or 5.2 per cent of all homes in metropolitan Melbourne.4 Lastly, of the homes that are occupied, we underuse them. According to a Gemlife survey, an estimated 85% of owner-occupiers over the age of 55 have at least 1 spare bedroom, and 60% have at least 2.5
These data do not imply that every vacant, under-used or under-occupied dwelling can immediately house another family. Some dwellings are between tenancies, being renovated, used intermittently, or unavailable for legitimate reasons. Nor does every staged release reflect deliberate withholding. But the scale of measured under-use shows that housing scarcity is not only a construction problem. It is also an incentive problem. A tax system that imposes low holding costs on valuable land allows scarce housing assets and development rights to sit idle, be used intermittently, or be withheld in expectation of capital gains. Broad land value taxation and stronger uplift capture both push in the same direction: reducing the private reward from withholding scarce land and increasing the incentive to use it productively.
2.1 Tax settings: the unbalanced treatment of work and property wealth
Australia relies heavily on personal income tax while leaving land wealth lightly taxed or taxed late. This matters for intergenerational equity because younger households often only have their labour income, while older and wealthier households hold a larger share of land and financial assets. A tax system that leans on wages while privileging land gains asks younger workers to fund public services while also paying inflated entry prices to incumbent landowners.
Residential investment property is especially problematic because much of the expected return is not a return to productive risk-taking. It is a land windfall. Planning decisions, public investment, population growth, and agglomeration produce a large share of the gain. The tax system should not treat this windfall as equivalent to a risky investment in productive enterprise, nor should it subsidise debt-funded bidding for existing dwellings.
The CGT discount and negative gearing should be considered together. Deductibility of investment losses against other investment income is a normal feature of a symmetric tax system. The problem arises when losses from housing investment can be immediately deducted against labour income, while the expected capital gain is taxed concessionally. That combination turns residential property into a tax-preferred, debt-funded vehicle for sheltering wage income and bidding up land values.
The Government is right to restrict this treatment for existing housing. But carving out “new” housing would badly weaken the reform. International evidence suggests such carve-outs create tax shelters disproportionately used by higher-income investors, worsen administration by forcing complex distinctions between eligible and ineligible dwellings, and are likely to be capitalised into higher land prices rather than materially improving affordability.6
Windfall taxes are among the least distortionary forms of taxation because they target gains that arise without productive effort by the landholder. A rezoning, transport investment, school catchment, employment cluster, or population increase can raise land values regardless of whether the owner builds, innovates, or otherwise improves the site. Capturing part of that uplift does not reduce the supply of land, which is fixed, and need not deter construction where the charge falls on unimproved land value or publicly created development rights, rather than on buildings.
The effect is to change the distribution of an unearned gain, not to punish productive activity. If anything, stronger uplift capture can improve incentives by reducing the payoff from land banking and encouraging landholders to develop, sell, or use well-located sites more efficiently.
2.2 Stamp duty, land tax and the mobility problem
Stamp duty is a bad tax. It penalises moving, discourages downsizing, reduces labour mobility, and narrows the tax base to those who transact. By contrast, a broad annual land value tax falls on the site value that the community helps create and cannot be shifted offshore. It encourages more efficient land use, reduces the reward for passive land banking, and can finance reductions in more damaging taxes.
Prosper’s research on stamp duty transition argues that the central challenge is transitional, not conceptual. Almost every economist agrees that replacing stamp duty with land tax is sound tax reform, but states need a credible way to protect recent duty payers, manage cash-flow concerns, and preserve revenue. The approach should combine immediate or accelerated duty abolition with credits for recent duty paid, a short phase-in of land tax, deferral options for liquidity-constrained owners, and Commonwealth support where needed.7
The ACT provides the main Australian example of a long transition away from transaction taxes and towards land value charges. Prosper’s first-interval evaluation found that anticipated future land tax obligations appeared to be capitalised into lower land prices, that typical new home buyers saved on mortgage repayments, and that the transition could reduce speculative buying without radical disruption.
2.3 Social housing and non-market housing
Market supply alone will not house all Australians. The decline in social housing as a share of households means more low-income households are pushed into the private rental market, where they compete with higher-income renters and face rising affordability stress. AIHW reports that social housing households increased from 404,000 in 2011 to 426,000 in 2024, but fell from 4.8 per cent to 4.1 per cent of all households over that period because total households grew faster.8
Land-rent capture provides an appropriate funding base because it recycles community-created value into community housing assets. Public land should be retained where possible and leased for long-term affordable housing, community land trusts, cooperatives or mixed-tenure projects. If governments sell scarce public land into private markets, they often turn a permanent affordability asset into a one-off budget receipt.
3. Geography and inequity
Housing inequity has a strong geographic dimension. Housing prices reflect access to jobs, schools, transport, health services, infrastructure, and amenities. In well-located areas, much of the value of land is created by public investment, planning decisions, population growth and surrounding economic activity, rather than by the individual landholder.
When these land rents are privately captured, existing owners of well-located land receive windfall gains, while younger and lower-income households must pay higher prices or rents to access the same opportunities. Households priced out of these locations may face longer commutes, higher transport costs, weaker services and reduced access to employment.
Policy should therefore consider not only the number of dwellings, but the distribution of location value. Land value taxation, rezoning uplift capture, infrastructure charges, and public land leasing can help recycle land rents into the infrastructure, services, and non-market housing needed to make well-located communities more accessible.
4. What has worked in Australia and overseas
The most effective policies share a common feature: they capture socially created gains, reduce speculation on scarce land, or create durable non-market alternatives to private ownership. Policies that merely increase purchasing power without changing supply delivery or land-price capture tend to be capitalised into higher prices.
Australia’s strongest domestic lesson is the ACT’s land-tax transition, which shows that a long transition towards broader land value charges can be implemented. Prosper’s transition work shows that alternative designs could move faster than the ACT while protecting recent duty payers and low-liquidity households.9
International tax advice also points towards recurrent property taxation. The OECD’s 2026 Economic Survey of Australia recommended increasing recurrent property taxes by lowering stamp duties while raising recurrent land taxes and phasing out favourable treatment of negative gearing.10
5. Factors that promote or impede reform
Housing reform is difficult because the current system creates large, visible losers from change and diffuse, delayed winners. Existing owners observe any new recurrent charge immediately, while future buyers benefit through lower purchase prices that are less visible. Governments fear being blamed for price falls even when lower prices are the intended affordability channel. Commonwealth and state tax responsibilities are split, enabling each level of government to blame the other.
Another barrier is narrative. Supply-only stories are politically convenient because they avoid confronting the distribution of land wealth. They imply that affordability can be restored without asking incumbents, investors or landholders to give up tax preferences or unearned uplift. Conversely, tax reform can be caricatured as an attack on ordinary owners. The Committee should reject both simplifications. Australia needs more homes, but it also needs to change the incentives that turn homes and development rights into tax-preferred wealth stores.
The most important enabler is package design. Recurrent land taxes are politically salient, but they become easier to defend when paired with lower stamp duty, lower taxes on work, deferral options, transition credits and transparent use of revenue for housing. Uplift capture is easier to defend when linked directly to the public decisions that create the gain.
6. Policy, legislative and other options
6.1 Commonwealth tax reform
- Avoid complex CGT and negative gearing “new-housing” carve-outs. Overseas evidence suggests concessions for “new supply” are typically capitalised into developable land values and create boundary problems.11
- Reduce or better target the owner-occupier CGT exemption. The main residence exemption should be narrowed so that very large, untaxed land windfalls do not receive more favourable treatment than returns to productive investment. Reform could be phased in through caps, thresholds, or partial inclusion of gains above a high-value limit. Rollover relief could be included to avoid impacts on labour mobility.
- Protect the tax base at death. Deemed CGT realisation at death for investment properties should be examined with rollover relief for surviving spouses. The objective is to prevent permanent escape from CGT on accrued gains, not to force distressed sales.
- Use revenue to reduce bad taxes or fund durable housing assets. Revenue from winding back housing tax concessions should fund lower taxes on work, Commonwealth incentives for land tax reform, and social/community housing assets.
7.2 State and territory reform
- Replace stamp duty with a broad land value tax. The Committee should recommend a national intergovernmental process to transition away from stamp duty. States should be supported to implement broad, annual land value charges with deferrals for liquidity-constrained households and credits for recent duty payers.
- Tax land by value, not improvements. Site value taxation encourages efficient use of scarce land without penalising building, renovation or densification. Taxes on land get capitalised into lower land prices, which improve the affordability of purchasing properties.
- Price development rights. Rezoning from low-value to high-value use creates a windfall. A material share should be captured through betterment charges, development rights auctions, land readjustment or infrastructure-beneficiary levies.
- Link capture to enabling infrastructure. Value capture is most legitimate when the revenue funds the infrastructure, schools, transport and open space needed to make density work.
