By Arun Yuvarajah, General Manager, MakeSpace - a housing advisory and project delivery for community, affordable and specialised housing providers

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The 2026–27 Federal Budget delivered the most significant property tax reform in Australia since the capital gains tax discount was introduced in 1999. Negative gearing on established residential properties has been restricted to new builds from 1 July 2027, and the 50% capital gains tax discount is being replaced by cost-base indexation and a 30% minimum tax on real capital gains. For community housing providers, not-for-profit housing organisations, and purpose-driven developers working on social and affordable housing, these changes reshape the investment environment and project viability in ways worth understanding clearly.

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What exactly did the 2026 budget change about negative gearing and capital gains tax?

The two core reforms are distinct but connected. Here is a summary of what changes, when, and for whom:

The exemption for private investors supporting government housing programs, including the provision of affordable housing, is directly relevant to community housing providers and not-for-profit housing organisations working with purpose-driven investors. This carve-out is confirmed in the Budget Tax Explainer and has not received wide coverage.

"The Federal Budget changes the investment equation for residential property by limiting negative gearing to new builds and replacing the 50% capital gains tax discount with indexation plus a 30% minimum tax on real gains from 1 July 2027." - CBA Economics, May 2026

The combined effect is the removal of negative gearing on established dwellings for new investors, which increases the effective cost of holding an established investment property for new investors

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What impact will the negative gearing and CGT changes have on house prices, first home buyers, and housing affordability?

Treasury modelling estimates the reforms will support approximately 75,000 additional Australians to purchase a home over the next decade, with house price growth running approximately 2% lower over the next couple of years than it would otherwise have been.

CBA Economics revised its modelling in June 2026, projecting prices to eventually settle just under 5% below where they otherwise would have been, a larger impact than its initial post-budget estimate of approximately 3%. CBA now forecasts flat dwelling price growth for 2026 overall, with the peak drag on annual house price growth reaching approximately -1.0 percentage points. The effect is expected to be gradual, taking approximately three years to fully materialise. The price impact will be concentrated in market segments where investor participation is highest: apartments, townhouses, and lower-priced established dwellings.

The government's stated aim is to rebalance housing affordability in Australia for younger buyers. Budget documentation notes that home ownership for households aged 25–34 fell by seven percentage points between 2001 and 2021. The policy is designed to ease investor competition for the established dwellings that first home buyers target.

However, economists remain divided. The reforms change who competes for established properties, and not the fundamental housing undersupply that has driven prices upward. In cities like Perth, Brisbane, and Adelaide, where listing volumes remain well below long-term averages, structural undersupply is likely to continue exerting upward price pressure regardless of changes to investor tax settings.

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What does this mean for rental supply and rental prices?

Treasury modelling estimates rents could increase by less than $2 per week for a household paying the current median rent. CBA Economics describes this as broadly consistent with their estimates, noting that interest rates and long-term supply-demand dynamics are the primary drivers of the rental market, and that federal budget housing tax policy represents a "compositional shift" affecting who owns properties rather than the total stock available. This particular modelling has been heavily contested.

The more specific concern is geographic. In inner-city and middle-ring locations where established homes make up the bulk of rental supply, reduced investor participation could remove stock from those specific markets. If owner-occupiers purchase those properties rather than investors, available rentals in those locations could shrink and rents could face localised upward pressure, even if the national average remains stable.

On the other side, investors shifting toward new builds (particularly higher-density apartments and townhouses with better rental yields) may gradually improve supply in those segments, partially offsetting the loss of established rental stock in other markets.

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How does the 2026 budget support housing supply through infrastructure investment?

The property tax reform works alongside supply-side measures in the budget.

The 2026–27 budget committed $2 billion through the Local Infrastructure Fund to support enabling infrastructure (power, water, sewerage, and road connections) for new housing developments, with the government estimating this will support up to 65,000 homes over the decade. Infrastructure connection costs have been one of the most frequently cited barriers to project viability in greenfield and fringe locations, affecting social housing, public housing, and affordable housing projects as much as private development. The fund provides a new lever for projects that would otherwise fail at feasibility.

Combined with the National Housing Accord's 1.2 million homes target and the Housing Australia Future Fund, these supply-side measures are the government's case that the budget is not purely a demand redistribution exercise. Victoria's Big Housing Build, now $8 billion-plus, targeting 12,000-plus social and affordable homes, reflects the same logic at a state level.

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What do the budget changes mean for affordable housing development and community housing providers?

The budget's reforms work with existing affordable housing mechanisms in ways that purpose-driven developers and community housing providers need to understand clearly.

The restriction of negative gearing to new builds creates a structural incentive toward new construction, and this is directly aligned with affordable housing development. Build-to-rent models and developments that include affordable housing components are now better positioned to attract investor capital than they were before. The exemption for private investors supporting government housing programs (confirmed in the Budget Tax Explainer) means that investment structures designed to produce affordable housing outcomes may retain full access to negative gearing even after 1 July 2027. This is worth exploring with legal and financial advisors for any provider working with private investors on new supply.

Housing outcomes for community housing providers and not-for-profit housing organisations may also be indirectly affected through the land acquisition market. A modest reduction in competition for established dwellings in the affordable price range could ease some of the pressure providers face when acquiring sites, though this effect will be gradual and uneven across different markets.

Victoria's planning framework includes mechanisms that sit alongside these changes: the Development Facilitation Program offers streamlined approvals for significant residential developments that include at least 10% affordable housing, and the Built Form Overlay enables public benefit uplift frameworks including affordable housing contributions where a schedule to the overlay specifies it. Our blog on affordable housing and the Victorian planning system covers how these mechanisms work in detail.

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How MakeSpace supports community housing providers and not-for-profit housing organisations through this environment

The 2026 budget changes will take time to flow through the market. The reforms do not take full effect until 1 July 2027, and their impact will be shaped by how investors restructure their approach, how quickly the construction sector absorbs redirected demand, and whether the infrastructure investment unlocks supply at the pace the government intends.

For community housing providers, not-for-profit housing organisations, and purpose-driven developers, the immediate question is what the budget means for project feasibility, procurement strategy, and delivery planning. Project risk does not disappear when the budget environment shifts. If anything, periods of policy change create more uncertainty around site values, construction costs, and investor appetite that need to be carefully managed through project governance.

MakeSpace's project management and advisory services support providers from early feasibility through to handover across social housing, community housing, affordable housing, and specialised residential accommodation. If your organisation is working through how the budget environment affects a project in planning or development, get in touch.

For broader context on how housing affordability and responsibility is shared across levels of government in Australia, our blog on who is responsible for housing affordability covers the full picture.

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Frequently Asked Questions (FAQs)

When do the negative gearing and CGT changes take effect?

The changes apply from 1 July 2027 for properties purchased after 7:30pm AEST on 12 May 2026. Existing holdings, including those already under contract at that date, continue under existing rules - the changes do not affect properties already held. CGT changes apply only to gains accruing after 1 July 2027. New residential builds are exempt from the negative gearing restrictions, and investors in new builds can choose either the existing 50% CGT discount method or the new cost-base indexation and 30% minimum tax approach. Widely held trusts, superannuation funds, build-to-rent developments, and investors supporting government housing programs are also exempt.

Will the budget changes make housing more affordable for first home buyers?

Treasury modelling estimates the reforms will support approximately 75,000 additional Australians into home ownership over the next decade, with house price growth running approximately 2% lower than it would otherwise have been. CBA's June 2026 revised modelling suggests prices could settle just under 5% below their otherwise-projected path over time, with flat growth forecast for 2026 overall. The reforms address investor competition for established stock, but do not resolve the underlying housing undersupply that is the primary driver of affordability pressure across Australia's major cities.

Will rents increase as a result of the budget changes to negative gearing?

Treasury models the impact at less than $2 per week on average for a household paying the current median rent, and CBA Economics broadly agrees. The rental market is primarily driven by interest rates and supply-demand fundamentals rather than tax settings. The specific concern is in inner-city and middle-ring markets where established homes dominate rental supply; if investors exit those markets and owner-occupiers replace them, available rentals in those locations could shrink and rents could face localised upward pressure, even if the national average remains stable.

What do the budget changes mean for affordable housing development?

The restriction of negative gearing to new builds creates a policy incentive structurally aligned with affordable housing development. The Budget Tax Explainer also confirms that private investors supporting government housing programs (including the provision of affordable housing) are explicitly exempt from the negative gearing changes. This exemption is directly relevant to community housing providers and not-for-profit housing organisations working with private capital on new supply. The $2 billion Local Infrastructure Fund provides an additional lever for projects stalled by infrastructure connection costs. Providers should assess how these changes interact with their specific project pipeline and seek advice on applicable investment structures.

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Sources: Australian Government — Budget 2026–27; Budget Tax Explainer — Negative Gearing and Capital Gains Tax Reform; Commonwealth Bank of Australia Economics — 2026 Budget: Updated housing outlook (May 2026); Treasury — Increasing housing supply; SQM Research — residential listing volumes

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Last updated on June 20, 2026