The Federal Budget has landed...
WHAT AUSTRALIANS NEED TO KNOW
The Federal Budget has confirmed changes to negative gearing and CGT. Here's what shifted, why it matters, and what it means for the market.
The government announced changes to CGT discounts and negative gearing
The 50 per cent capital gains tax discount for established properties will also be replaced from 1 July 2027 with cost-base indexation for assets held for more than 12 months, alongside a 30 per cent minimum tax on net capital gains
Negative gearing will be limited to new builds from 1 July 2027
Established properties acquired or contracted before 7:30pm (AEST) on 12 May 2026 will be grandfathered until sold, while established properties acquired after last night will be subject to the new rules from 1 July 2027
The Federal Budget has confirmed a major shift in housing tax policy, with negative gearing to be limited to new builds and CGT changes designed to reduce the tax advantage of investing in property The intent is clear: reduce investor competition for existing homes and redirect capital into new housing. But while this may be politically neat, the housing market is more complicated. Australia’s affordability problem is not simply the result of investors buying established homes It is the result of not enough homes being built in the places people need to live These changes do not remove housing pressure - they risk shifting it from purchase prices into rents
The changes are significant. Negative gearing will be limited to new builds from 1 July 2027. Established properties acquired before 7:30pm (AEST) on 12 May 2026 will be grandfathered until sold, while established properties acquired after that time will be subject to the new rules from 1 July 2027.
The 50 per cent capital gains tax discount will also be replaced from 1 July 2027 with cost-base indexation for assets held for more than 12 months, alongside a 30 per cent minimum tax on net capital gains. This means investors will generally be taxed on inflation-adjusted gains rather than receiving a flat 50 per cent discount, although gains accrued before 1 July 2027 will retain the existing discount and investors in new residential properties will be able to choose either the 50 per cent discount or the new indexation/minimum-tax treatment
Together, the changes are designed to reduce the tax advantage of buying established investment properties and push more investor demand toward new supply.
These proposed changes may reduce competition for some buyers, but they are also expected to reduce the number of rental properties available. Many existing investors are likely to hold rather than sell, while some rental homes may transition into owner-occupied housing, tightening rental supply.
Victoria provides a recent example of this trend Following higher land taxes and stricter rental regulations, more than 20,000 rental properties left the market in a year While property price growth slowed, rents increased significantly, highlighting the risk that affordability pressures shift from buyers to renters rather than disappearing altogether.
Limiting negative gearing to new builds assumes rental supply is interchangeable It is not Investor activity is likely to shift toward outer growth corridors, apartment precincts and masterplanned communities where new housing is easier to deliver. However, this does not replace established rental homes near schools, hospitals, universities, transport hubs and major employment centres where demand is often strongest. The risk is more rental supply in some areas, but reduced supply and less renter choice in established and middle-ring suburbs with limited new development
Regional rental markets could be hit hardest by these changes. Many regional areas do not have large new housing pipelines, with high construction costs, limited trades and a shortage of serviced land slowing development
If investors are discouraged from buying existing rental homes, there may not be enough new supply to replace them. In smaller regional markets, even a small drop in investor activity can quickly impact rental availability, particularly in areas supported by hospitals, tourism, agriculture, mining and major infrastructure projects.
Limiting negative gearing to new builds may make it harder for younger Australians to use “rentvesting” as a pathway into the property market Many first-time buyers cannot afford to purchase where they live, so instead they rent in lifestyle locations while buying a more affordable investment property elsewhere to start building equity
Restricting investment options to new builds could reduce access to this strategy, potentially making it harder for younger buyers to enter the market and build long-term wealth
Limiting negative gearing on established homes could reduce market activity by removing a major buyer group and encouraging existing investors to hold properties longer to retain current tax benefits
Lower transaction volumes can impact not just property sales, but also the broader economy, including agents, brokers, lenders, trades and retail spending A slower market can reduce liquidity and make price movements harder to gauge.
Limiting negative gearing to new homes creates a tax preference for new housing, but that is not the same as guaranteeing more homes will be built. For the policy to increase supply, investors need to buy new properties at prices that make projects viable That depends on planning approvals, infrastructure, construction costs, labour availability, finance and whether the finished product is in a location where people actually want to rent If those constraints remain, the tax setting alone will not deliver the supply response the government is hoping for. Construction costs in particular remain extremely high and have reaccelerated.
There is also a resale issue A property is only “new” once Once it is sold again, the next investor buyer may not receive the same tax treatment, which narrows the future buyer pool That affects what an investor is willing to pay today. Some investor demand will shift into new housing, but this does not automatically translate into more construction, particularly if investors are worried about resale value or if projects still do not stack up.
Replacing the 50 per cent CGT discount with cost-base indexation may look like a straightforward budget repair measure, but the outcome will depend on the market. If property prices rise strongly, the change is likely to raise more revenue. But if price growth is weak and inflation remains relatively high, indexation will reduce the taxable gain because the cost base is adjusted for inflation.
The new 30 per cent minimum tax on net capital gains means this is not a simple return to taxing only real gains But the broader point remains: the Budget assumes a material revenue benefit, and that benefit will depend on inflation, house price growth and how investors respond.
Rental housing plays an important role in labour mobility. People rent when they move for a new job, take up a temporary contract, study, separate, migrate, or relocate before deciding whether to buy. If established rental supply tightens and new investor-owned stock is concentrated in particular locations, it becomes harder for workers to move to where jobs are available
This matters beyond housing. Employers already face staffing challenges in many high-demand areas, including healthcare, education, construction, tourism and regional services. If rental options become harder to find in established employment centres, housing policy becomes a labour market problem. A policy aimed at improving affordability could end up reducing workforce flexibility
The argument for reducing investor demand often assumes a simple transfer: a renter buys a former rental property, becomes a first home buyer, and the problem is solved But the rental market does not work that way Renters are constantly entering and leaving the market as young people move out of home, migrants arrive, relationships change, students relocate, and workers move between cities and regions If a rental home becomes owner-occupied, that may help one household buy. But it also removes a dwelling from the rental pool, while new renters continue to arrive. This is why reducing investor participation does not necessarily improve affordability overall. It may change who occupies a particular home, but unless total housing supply increases, the pressure remains in the system - and often reappears as higher rents and fewer rental options
There are positives in the budget, but they are mostly supply-side measures that work slowly rather than policies that will immediately change housing affordability.
The strongest is the commitment of $2 billion for enabling infrastructure - local roads, pipes, water, power and sewerage - to help unlock up to 65,000 homes over a decade. This recognises one of the biggest constraints on housing supply: homes cannot be built if the land is not serviced In that sense, this is a bettertargeted housing measure than demand-side assistance because it goes to the physical barriers that stop projects from proceeding
There is also a positive focus on the construction workforce. The government’s housing construction apprenticeship stream is providing $10,000 incentive payments to eligible apprentices, with support also available for employers More than 11,000 housing construction apprentices had commenced under the program in its first six months, including in trades such as carpentry, electrical and other critical construction occupations That matters because the national housing target cannot be achieved without more people on the tools.
Measures to improve recognition of migrant skills and speed up project approvals will also help, particularly if they reduce delays for residential construction trades and housing projects Labour shortages, slow approvals and infrastructure gaps are all part of the same problem: Australia is not just short of housing demand; it is short of housing delivery capacity.
But the scale needs to be kept in perspective. Unlocking up to 65,000 homes over ten years is useful, but Australia’s national target is 1 2 million new homes over five years Apprenticeship incentives are welcome, but new apprentices take years to become fully productive tradespeople Faster approvals help, but only if projects are financially viable and supported by infrastructure, labour and finance.