Former Liberal MP Proposes Negative Gearing Cap to Boost Housing Supply
Keith Wolahan, a former federal Liberal MP, has called for significant changes to negative gearing policies, proposing a cap that would limit investors to claiming tax deductions on just one established property and up to five newly built dwellings. This proposal aims to increase housing supply and make the Liberal party more appealing to younger voters, particularly first home buyers.
Addressing Housing Affordability Through Tax Reform
In his essay titled Liberal Foundations, published in Inflection Points, Wolahan argues that the current negative gearing system disproportionately benefits investors in established properties, with 2025 data showing that 82% of investor loans went toward existing dwellings. He believes redirecting this investment toward new construction would create more housing options for young Australians struggling to enter the property market.
"There's also a political dimension, which says that the Liberal party is willing to touch something we didn't in the past," Wolahan told Guardian Australia, emphasizing that his proposal includes grandfathering provisions to protect existing investments and prevent political scare campaigns.
Political Realignment and Voter Appeal
Wolahan contends that the Liberal party has lost significant ground to Labor in multicultural and outer suburban seats, with 28 metropolitan seats shifting to Labor compared to just seven lost to teal independents since 2013. He argues the party must adapt to appeal to contemporary voters, exemplified by a 32-year-old university-educated woman renting in suburban Melbourne whose parents migrated from China.
"She works hard. She pays her taxes. She wants to buy a home, start a family, and build a life. She believes in aspiration. She should be a Liberal voter, yet she is not," Wolahan wrote, highlighting what he describes as the party's "structural failure to meet the needs of today's Australia."
Expert Reactions and Political Responses
The proposal has received mixed reactions from housing and policy experts:
- Jonathan O'Brien, editor-in-chief of Inflection Points and lead organizer for Yimby Melbourne, welcomed the idea of "refocusing our tax settings to spur productive behavior within our economy."
- Martin Duck, a University of Sydney researcher specializing in negative gearing, described it as "a very minor tweak" that would affect few investors since approximately 70% of negative gearers only claim deductions on one property.
- Brendan Coates from the Grattan Institute called it "a step in the right direction" but questioned how much it would actually boost supply, noting Australia's negative gearing concessions are "very generous" by global standards.
Shadow Treasurer Tim Wilson criticized the proposal, arguing it would mean "taxing losses which will lead to less investment" and that housing affordability challenges stem from labor shortages and construction costs rather than tax policy. The Coalition's housing spokesperson, Andrew Bragg, declined to comment when contacted.
Broader Political Context
Wolahan, a former army commando once considered potential leadership material, lost his Melbourne seat of Menzies in the 2025 election, partly due to declining support among Chinese Australian voters. His proposal comes as Labor faces pressure to reform capital gains tax concessions, though the party has repeatedly ruled out changing negative gearing since its unsuccessful 2019 election campaign under Bill Shorten.
The debate highlights ongoing tensions within Australian politics regarding housing policy, with Wolahan positioning his negative gearing cap as both a practical measure to increase housing supply and a symbolic gesture to demonstrate the Liberal party's willingness to evolve and address contemporary economic challenges facing younger Australians.
