Negative gearing and capital gains tax changes (CGT) under federal government introduced tax reform is undergoing a fast-tracked Senate inquiry and the official body of the nation's residential building industry has called for changes.

Housing Industry Association (HIA) has concerns the policy will discourage housing investment, the very opposite to what the tax reform claims will achieve.

From 2027-28, negative gearing will be limited to new builds, and the 50 per cent discount will be replaced with inflations adjusted to indexation, with a minimum 30 per cent tax rate with existing investments before 12 May 2026 grandfarthered (exempt).

HIA managing director Jocelyn Martin said the association continues to strongly oppose the proposed housing taxation changes.

“Treasury’s own modelling shows these changes could reduce housing supply by around 35,000 homes over the next decade," she said.

“While HIA does not support the taxation changes, our focus is now on making a flawed proposal more workable and minimising the damage to housing supply.”

“A key concern that HIA will make in its submission to the Senate inquiry is the draft legislation adopts a too narrow definition of ‘new housing,’ which does not reflect how new supply is actually delivered," Ms Martin said.

“To support supply, the legislation must capture the full range of housing being delivered in today’s market."

HIA is calling on the Senate to broaden the definition of new housing to explicitly include: knock down rebuilds, dual key and multi-generational homes, secondary dwellings and granny flats, and major renovations that bring homes up to modern building codes.

“In many established suburbs, planning rules limit higher-density development, and knock down rebuilds and secondary dwellings are often the only practical way to increase supply," Ms Martin said.

“If these are not recognised, the policy will work against its own objective.”

Grow Wangaratta vice-chair and real estate agent Dean Rees said the HIA's proposal to have different types of dwellings identified as new housing, such as major renovations, might not be effective in creating extra housing.

He said major renovations are commonly carried out on primary place of residence where CGT already exists.

"Granny flats are also part of an existing property that would add capital, unless in the case the principal property is already a rental and the owner places a granny flat in the backyard to secure a double income," he said.

Mr Rees believes there should be a CGT exemption for mum and dad investors who buy an established house and provide it as a rental for a minimum of five years.

He said the government has failed people who provide an established home rental who were using it as security for their retirement.

"This is your mum and dad investors who own one rental property for 2-15 years to help support their retirement, they're going to get knocked about here," he said.

"The biggest thing the government wants is housing on the ground and this is certainly no avenue to achieve this."