Australia’s ‘spare bedroom tax’ proposal sparks national backlash

A provocative proposal to tax homeowners for maintaining spare bedrooms has ignited public backlash as part of broader economic reform discussions.

The concept was floated at the recent Economic Reform Roundtable and aims to address Australia’s housing supply and affordability crisis by discouraging under-utilised living space. However, critics say the proposal overlooks deeper structural issues and unfairly penalises retirees and families with legitimate reasons for extra rooms.

Citing a housing mismatch, real-estate analytics firm Cotality revealed that over 60 percent of homes are occupied by just one or two people, while more than 75 percent of properties feature three or more bedrooms.

Eliza Owen, Cotality’s head of Australian research, suggested taxing surplus bedrooms could shift housing demand toward smaller, well-located apartments. “Governments could make it more expensive to have more housing than needed and cheaper to live in smaller housing,” she told news website news.com.au.

In addition, Owen proposed abolishing stamp duty in favour of a “broad-based land tax”, which Cotality research director Tim Lawless believes could reduce upfront costs of downsizing and better meet modern household needs. “A land tax model removes that initial and large upfront cost,” Lawless said.

The reaction was swift and negative. AMP Chief Economist Shane Oliver warned the move would spark major political fallout. “That would cause a huge backlash politically… it would be seen as a huge attack on empty nesters,” he said on news.com.au.

Online commenters argued many spare rooms serve vital roles — guest spaces, home offices, storage — or reflect practical necessity, not waste.

The broader roundtable also discussed scrapping the capital gains tax exemption on family homes, reducing CGT discounts, taxing superannuation for retirees, and introducing a 2 percent wealth tax for high-net-worth individuals.

Though Prime Minister Anthony Albanese has promised no new taxes before the 2028 election, Treasurer Jim Chalmers has not ruled out implementing unpopular measures like these in the future.

In conjunction with calls for regulatory reform, the government faces mounting pressure to deliver on its goal of building 1.2 million homes — an ambition critics say is already behind schedule.

Observers argue that improving housing supply, easing planning bottlenecks, and reducing construction costs would be more effective than taxing private living arrangements.