Scrapping negative gearing and the 50 per cent capital gains tax discount is forecast to cause home prices to grow about two per cent slower than they otherwise would have in the next few years, according to Tuesday's federal budget.
By reducing investor demand, the tax package is expected to boost home ownership by about 75,000 over the next decade.
While acknowledging that the move would be controversial, Treasurer Jim Chalmers said the changes were needed because the interaction of the housing market and the tax system was locking too many young Australians out of the housing market.
But it will also reduce supply by about 35,000 homes over the same period, which would push up rents by about $2 a week, Treasury analysis found.
The government says the fall in supply will be more than offset by a $2 billion contribution in the budget for water pipes, roads and other infrastructure that enable about 65,000 more homes to be built.
The budget failed to deliver on Labor's commitment to do everything it could to increase new housing supply, Master Builders Australia chief executive Denita Wawn said.
"The opportunity that exists to turbocharge housing supply has been lost," she said.
The tax package, which also included higher taxes on trusts, is promised to boost the structural deficit by $77 billion over the next decade.
But in the near term, tax receipts are expected to be hit by a further fall in the tobacco excise.
The growing illicit tobacco black market was revised down $1.2 billion in 2026/27 and $8 billion over the five years to 2029/30.
That would represent a 73 per cent decline from the $7.8 billion take in 2024/25.
The budget is not expected to return to surplus until 2034/35, with $150 billion in cumulative deficits forecast until 2029/30.
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