I think the issue with downsizing is not a CGT issue, its more of a stamp duty issue. And i certainly dont think there are too many big houses flooding the perth market.
What there is a flood of is properties coming to market in some areas where owners want more than what the market is currently wanting to pay and hence the level of vendor discounting remains elevated as they eventually end up having to 'meet the market'
Scalling down does not have to mean living in a lesser area. Though the NIMBY phenomenon as well as the effect of stamp duty on a downsizing purchase has played a role in limiting downsizing activity and downsized accommodation options in existing and or more desirable locations.
