By Rich Harvey, CEO & Founder, propertybuyer.com.au

There's an old line about good intentions and the road they tend to pave. I've thought about it more than once since May’s budget.

Because whatever you make of taxing property investors more heavily, one fact, as I see it, sits stubbornly outside the argument. The 2026 Federal Budget does not contribute a single extra home to supply. Not one. Not a slab poured, not a frame stood.

That matters, because the reason house prices have risen in Australia isn’t about tax settings. It's because there are many people, not enough dwellings. Everything else is a rounding error on top of that equation.

 

What actually changed

The short version of what the negative gearing changes in 2026 is this.

From 7:30pm on Budget night, 12 May 2026, investors buying an established residential property can no longer offset rental losses against their wages from 1 July 2027. Those losses remain claimable against residential property income and can be carried forward, but the salary deduction is gone.

Negative gearing, as was applied across all property, is now reserved for new builds only.

Alongside that, from 1 July 2027 the 50 per cent discount is replaced by cost base indexation and a minimum 30 per cent tax on gains. Gains accrued up to that date keep the old discount, with your property's value on 1 July 2027 becoming the cost base for everything after. So nobody is sheltered indefinitely, and every investor shifts onto the new regime for future growth.

The legislation passed the Senate on 25 June. This is no longer a proposal to argue about. It's law.

The intention is to push the concessions away from driving up the price of existing house prices and incentivise toward building new ones. Treasury's modelling put the impact on rents at around $2 a week increase.

That “logic” may hold on a whiteboard somewhere deep in the dark corridors of the public service, but markets aren't whiteboards… they’re reality manifest.

 

The rental reality

The first thing to understand is that investors didn't suddenly pivot to new builds because of the changed tax settings. Instead, they decided in large to stop participating altogether.

ABS lending figures for the June quarter showed new investor loan commitments down 8.6 per cent, which is the sharpest quarterly fall since September 2022, and running around 15 per cent below a year ago.

This is about borrowing capacity. When you can't offset a shortfall against your salary via negative gearing, the bank's serviceability calculation changes and the number you can borrow falls with it. Nor have these investors switched their focus toward ne homes and units, because off-the-plan apartments or dwellings carry entirely different risk profiles comprising settlement risk, build quality, developer solvency, and a new-property price premium.

Which brings us to the uncomfortable part. Private investors supply the overwhelming majority of Australia's rental homes. Fewer investors mean fewer rentals, not in some distant scenario, but progressively, as stock that would have been added to the rental market simply isn't.

Meanwhile, the rental shortage Australia is already living through hasn't budged. SQM Research had the national vacancy rate at 1.3 per cent in July, with five capital cities still under one per cent.

NAB caused a stir recently by suggesting that if gross yields in Sydney and Melbourne must rise by a percentage point to compensate for the lost tax benefit, that implies rent increases of 25 to 30 per cent over two years. The Treasurer rejected it and stood by the $2 figure.

My honest view is that neither number is what plays out. Landlords can want a higher yield all they like, but tenants have to be able to pay it, and wages haven't grown fast enough to absorb a 30 per cent rise. So, what you get isn't a clean price adjustment but rather a rationing. Share houses. Adult children staying home longer. A shift to the outer suburbs. Rents rise, just not as neatly as the models suggest.

 

Where prices go, and who wears it

On prices, the effect looks real but modest. CBA has trimmed its dwelling price growth forecast to around three per cent for 2026, estimating values will sit roughly three per cent below where they otherwise would have. A trim, not a correction, which tells you these measures were never going to deliver an affordability breakthrough.

Renters wear it first and hardest. Then it's the mum-and-dad investor, the teacher with one unit, the couple with a single rental they hope will ease their retirement. Wealthy investors have options: cash, self-managed super funds, commercial property, or simply buying shares instead.

The group nobody's discussing is future owner-occupiers. Grandfathering gives existing investors a strong reason never to sell, which is a lock-in effect that means less established stock coming to market, not more.

 

The problem nobody is fixing

Here's the number that should be dominating this conversation. Australia's housing target of 1.2 million homes by mid-2029 requires 240,000 completions a year, and the Housing Industry Association puts the genuinely sustainable figure closer to 250,000 once you account for shrinking household sizes and the backlog we've already built up.

We're nowhere near either. Master Builders Australia recorded 180,500 starts in 2024-25 and has since widened its projected five-year shortfall to more than 180,000 homes. No state or territory is on track. HIA figures show commencements in the twelve months to March running almost 30 per cent below the required pace.

Now ask what's causing that. It isn't the tax treatment of established housing.

It's planning and zoning rules that block density where density makes sense. Approval timelines measured in years. Construction costs are nearly 50 per cent higher than pre-pandemic. Then there are labour challenges and lack of skilled workers to complete these new homes.

You cannot tax your way out of a bricklayer shortage.

The fixes are unglamorous, and none fit a Budget night soundbite so they tend to get swept past. They’re levers such as rezoning around transport corridors, cutting approval times, stripping back the regulatory cost baked into every build, training tradespeople at scale, and building social housing at volume. Housing supply Australia-wide is a construction and planning problem.

 

What this means if you're buying

For anyone investing in property Australia-wide, the fundamentals haven't changed. Supply is tightening and population growth continues.

What has changed is that after-tax cashflow now matters far more than it did. The days of buying a low-yielding asset and letting the tax office fund the shortfall are over, which pushes the analysis towards markets where the rent genuinely supports the holding. If you already own an investment property Australia-wide under the old rules, think carefully before selling.

 

A final thought

When you work in the realities of this market day in and day out you develop a healthy scepticism about interventions designed by politicians a long way from the coalface. Not because the people making them lack good intentions, but because markets respond to incentives in ways modelling rarely captures, and unintended consequences have a habit of landing on the very people a policy was meant to help.

I'd like to be wrong on this one, and I'd like to think that in the long run good sense prevails, and that governments turn their attention to building more homes, faster. Until then, the equation stays exactly where it's always been. Too many people, too few dwellings.

If you'd like help working out what these changes mean for your own strategy, get in touch with our team at Propertybuyer. We work in this market every day, and we'll help you make decisions based on what's actually happening, not what's making headlines.

 

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