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

Published on August 15, 2026

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The 2026 federal budget's changes to negative gearing and the capital gains tax discount are the most significant property tax reform in a generation. Early evidence from CBA, Westpac, and Treasury modelling points to moderating prices, reduced investor activity in the established market, and a gradual compositional shift toward owner-occupation, with new residential builds becoming more attractive to investors than established stock. For social housing providers, community housing organisations, and purpose-driven developers, understanding how these changes affect the broader supply and affordability picture matters as the market conditions they operate within are being reshaped.

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What are the negative gearing and capital gains tax discount changes, and how do they affect property investors?

This is a brief recap of the core changes. A detailed breakdown is covered in our blog on the 2026 federal budget and housing.

What changed:

• From 1 July 2027, negative gearing on established residential properties is abolished for properties purchased after 7:30pm AEST on 12 May 2026
• Investors who already held properties at that date continue under existing rules until they sell
• New residential builds remain fully exempt from the negative gearing restrictions
• The 50% capital gains tax discount is replaced by cost-base indexation and a 30% minimum tax rate on real capital gains from 1 July 2027; investors in new builds can choose either method

Who is affected:

According to the ATO's most recent taxation statistics (2023–24), approximately 2.34 million Australians hold an interest in residential property. Of those, approximately 54% were negatively geared, a share that tracks inversely with interest rates and has shifted significantly since the low-rate era of 2020–22. The scale of investor participation in the market this policy is targeting has also grown: investors accounted for approximately 41% of total housing lending by volume as of early 2026, the highest level since the ABS began tracking this series in 2019.

The exemption for new builds is the policy's central mechanism. It is designed to redirect investor demand from competition for established homes toward funding new housing construction, particularly apartments and medium-density development where investor pre-sales play an important role in enabling projects to proceed.

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What will happen to house prices in Australia after the investor incentive changes?

Three major forecasters have now revised their housing market outlook following the budget announcement. Their projections differ in degree but converge in direction.

Sources: Budget Tax Explainer; CBA Economics, May 2026; Westpac IQ, May 2026

CBA revised its housing forecast in June 2026 to project dwelling prices flat for 2026 overall, ultimately settling just under 5% below where they would otherwise have been. Westpac projected flat prices across major capitals for 2026, with Sydney (-3%) and Melbourne (-4%) expected to see outright declines.

The price impact will be concentrated where investor participation has been highest: apartments, townhouses, and lower-priced established dwellings. Owner-occupier-dominated detached housing markets are expected to be less affected.

Cities with structural housing undersupply (Perth, Brisbane, and Adelaide) face a different dynamic. Listing volumes in these markets remain well below long-term averages, and upward price pressure is likely to persist regardless of tax settings because demand does not disappear with changes to investor incentives. The compositional shift in who owns properties changes; the fundamental supply-demand imbalance in those cities does not.

Price moderation is not the same as price collapse. The policy is designed to ease the rate of price growth, not to trigger a market correction. For the 75,000 additional households Treasury projects will enter as owner-occupiers over the next decade, even modest moderation in competition for established properties in the affordable price range represents a meaningful change.

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What does this mean for housing supply and the rental market?

The supply question is where economists disagree most.

The case for neutral to positive supply outcomes:

By restricting negative gearing to new builds, the policy redirects investor demand toward new residential construction. CBA notes this is expected to support construction activity particularly for apartments, where investor pre-sales are important to project viability. Westpac analysis of ABS lending data shows approximately 18% of new investor finance approvals were already directed toward newly built dwellings, and that share is likely to rise as established property becomes less tax-advantaged. Both CBA and Westpac expect the overall housing supply impact to be broadly neutral to slightly positive over the medium term, as the compositional shift toward new builds offsets reduced investor activity in the established market.

The counter-argument:

The federal budget's own modelling acknowledges some supply risk. The budget papers estimate the changes could reduce the number of new homes built over the next decade by approximately 35,000, reflecting the view that lower prices in some segments may make development projects harder to stack up for developers. This sits in tension with the "neutral to slightly positive" view. The actual outcome will depend on how quickly investor demand shifts to new construction and whether construction costs ease sufficiently to support development feasibility.

On the rental market:

Treasury models the average impact on rents at less than $2 per week. CBA's assessment is broadly consistent. The more specific concern is geographic: in inner-city and middle-ring locations where established homes dominate the rental supply, a shift toward owner-occupation could reduce the pool of available rentals and push rents up in those specific markets, even while the national average remains stable.

For social housing and public housing: the changes do not directly affect social housing supply programs. Public housing waitlists remain at or near record highs (169,000 households on the National Housing Supply and Affordability Council's (NHSAC) most recent count) and that gap requires direct social housing investment, not changes to private investor tax settings. Community housing providers and not-for-profit housing organisations working to address that shortfall are operating within the same market environment, not responding to the same policy levers.

For more on the broader supply picture and the 938,000 vs 1.2 million Housing Accord gap, our blog on who is responsible for housing affordability in Australia covers the governance and supply dimensions in detail.

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Why is population concentration making housing affordability harder to address?

Tax reform addresses one part of the affordability equation. Population concentration is another part that tax policy alone cannot resolve.

According to the ABS Regional Population data (2023–24), more than 40% of Australia's population lives in Sydney and Melbourne. Housing governance across three levels of government has struggled to coordinate a supply response proportionate with that concentration, and in fast-growing cities like Perth, Brisbane, and Adelaide, structural undersupply means price pressure persists regardless of how investor incentives are structured.

Data shows Australian home values grew 193.1% over the past 20 years, while wages grew 81.7% over the same period. At the national average dwelling price of approximately $1.07 million (ABS Q4 2025), a median-income earner would need 9.7 years of gross salary to cover the purchase price. This divergence has accumulated over decades, driven by supply consistently failing to match demand in the locations where Australians need to live.

The COVID-19 period provided a real-world test of what decentralisation looks like in practice. Remote work enabled population movement from major cities to regional areas. But without a corresponding increase in housing supply in regional markets, prices followed. Decentralisation without development demand analysis and supply planning doesn’t resolve the affordability challenge.

Infrastructure investment is increasingly cited as the prerequisite for any genuine decentralisation strategy. The argument is that transit-oriented development and high-quality transport connectivity would allow population growth to follow infrastructure, spreading demand from concentrated metropolitan centres. The 2026 budget's $2 billion Local Infrastructure Fund is one step in this direction, supporting the enabling infrastructure that connects new housing to existing services. It will take time to translate into completed dwellings, and the scale of investment required to meaningfully shift population concentration is considerably larger.

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What does this mean for first home buyers and intergenerational equity?

The 2026 reforms are explicitly framed around intergenerational equity. Home ownership for households aged 25–34 fell by seven percentage points between 2001 and 2021. The policy is designed to reduce investor competition for the established properties in the affordable price range that first home buyers are targeting.

The price-to-income ratio tells the affordability story clearly. PropTrack's Housing Affordability Report (November 2025) found that a median-income household earning approximately $118,000 could afford just 15% of all homes sold in FY25. The report also found it would take 5.8 years to save a 20% deposit at a 20% savings rate. For younger Australians, the structural divergence between house prices and wages (193.1% vs 81.7% over 20 years) is the reason home ownership has moved out of reach for many people who would otherwise expect to own.

Treasury projects 75,000 additional owner-occupiers over the next decade as a result of the reforms, a meaningful number that arrives gradually, concentrated in lower-priced established dwelling markets, and offset to some degree by the rental supply dynamics discussed above.

The debate about whether tax changes alone are sufficient remains live. Some economists argue that without corresponding supply-side investment, planning reform, and infrastructure, these reforms will not resolve structural rental affordability, and may reduce supply in some markets before the compositional shift toward new builds fully offsets that reduction. Others argue that removing the tax-driven advantage for investors in established stock is a necessary precondition for any meaningful improvement in intergenerational housing equity. The evidence on the reforms' effects will take several years to gain fruition.

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How MakeSpace supports community housing providers and affordable housing development in this environment

The broader market is shifting: investor behaviour is changing, price dynamics are moderating, and policy is directing capital toward new housing supply rather than established stock. For community housing providers, not-for-profit housing organisations, and purpose-driven developers, the more immediate question is what they can do within the current environment to get more social and affordable housing built.

The structural supply gap identified by the NHSAC remains: 938,000 dwellings forecast against a 1.2 million National Housing Accord target. Investor tax changes do not close that gap. New social and affordable housing, built by community housing providers and not-for-profit housing organisations, does. That requires feasibility grounded in real demand data, procurement strategy that accounts for current construction market conditions, and project governance that keeps programs on track; and it is harder to do well without experienced advisory support, particularly for organisations carrying significant project responsibility with limited in-house capacity.

MakeSpace works alongside social housing providers, community housing organisations, and purpose-driven developers on affordable housing projects, from early feasibility through to handover. The policy environment is changing; the need for more homes is not.

For an understanding of the Victorian planning mechanisms that sit alongside these tax reforms, including floor area uplifts and Development Facilitation Program pathways, our blog on affordable housing and the Victorian planning system covers this in detail.

If your organisation is planning or progressing a social, affordable, or community housing project and would like to talk through the development considerations, get in touch.

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Frequently Asked Questions (FAQs)

What is the difference between negative gearing and the CGT discount, and why do they matter for housing affordability?

Negative gearing allows property investors to deduct rental losses against other income, reducing their tax liability while waiting for capital growth. The 50% capital gains tax discount, introduced in 1999, halved the tax on investment profits for assets held more than 12 months. Together, they have made residential property a tax-advantaged asset class for investors. Treasury's Tax Expenditures and Insights Statement shows approximately 95% of the CGT discount benefit flows to those earning above median income, and approximately 83% to the top income decile. Critics argue this has inflated demand for established properties and contributed to the long-term divergence between home prices and wages.

Will the budget changes reduce house prices and moderate the housing market?

Not dramatically, and not immediately. CBA and Westpac both project flat price growth for 2026 overall, with Sydney (-3%) and Melbourne (-4%) expected to see modest outright declines. Over the medium term, CBA projects prices to settle just under 5% below their otherwise-projected path, meaningful moderation, but not a correction. The price impact will be concentrated in apartment and lower-priced established dwelling markets where investor participation has historically been highest. Cities with structural undersupply, Perth, Brisbane, and Adelaide, are likely to face continued upward pressure regardless of the tax changes.

Are the reforms good for housing supply?

The evidence is mixed. Restricting negative gearing to new builds is designed to redirect investor capital toward new residential construction, and CBA and Westpac both expect the medium-term supply impact to be broadly neutral to slightly positive. However, the federal budget's own modelling estimates the changes could reduce new home construction by approximately 35,000 dwellings over the decade, reflecting concerns that lower prices may reduce development feasibility in some segments. The actual outcome will depend on how quickly investor demand shifts to new construction, construction cost trends, and whether the $2 billion Local Infrastructure Fund effectively unlocks new supply.

How do these changes affect social and community housing providers?

The changes primarily affect private investor behaviour rather than the social and community housing sector directly. Social and affordable housing is funded through separate government programs — the Housing Australia Future Fund, National Housing and Homelessness Agreement, and state-level programs — not through negative gearing or CGT incentives. Public housing waitlists remain at or near record highs at 169,000 households per NHSAC data. Investor tax reform does not address that gap; closing it requires direct social housing investment and the project capability of community housing providers and not-for-profit housing organisations building new supply.

Sources: Budget Tax Explainer — Negative Gearing and CGT Reform; CBA Economics — 2026 Budget: Updated Housing Outlook; Westpac IQ — Housing Forecast Update, May 2026; PropTrack Housing Affordability Report, November 2025; NHSAC — State of the Housing System 2025; ABS — Residential Property Price Indexes, Q4 2025; ABS — Regional Population 2023-24; Treasury Tax Expenditures and Insights Statement 2025-26

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Last updated on August 15, 2026

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