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Australian Federal Budget Limits Negative Gearing; Investor Activity Declines, First-Home Buyer Interest Rises

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Australian Budget 2026: Property Tax Overhaul Shakes Up Housing Market

The May 12 federal budget limits negative gearing to new builds and overhauls the capital gains tax discount, triggering an immediate shift in investor and first-home buyer activity.

Budget Policy Details

The federal budget, announced on May 12, 2026, includes the following property-related measures:

  • Negative Gearing: Tax concessions will be limited to newly built properties. Existing arrangements are grandfathered.
  • Capital Gains Tax (CGT): The current CGT discount will be replaced with a system taxing gains above inflation. Investors in new builds may retain the option to use the previous discount.
  • Housing Supply: The budget allocates $2 billion for water and road connections intended to increase housing supply.
  • First-Home Buyer Projection: The government projects the changes will assist approximately 75,000 Australians to purchase their first home over a decade.

These changes are based on a 2015 policy proposal from the McKell Institute, authored by economist Richard Holden.

Market Data: Investor Lending at Decade High

Prior to the budget, the Australian Bureau of Statistics (ABS) released data for the March quarter of 2026 showing that the share of home lending to investors comprised 40.3% of new loan value—the highest proportion since the December quarter of 2016.

By comparison, first-home buyers accounted for just 17.4% of new loan value in the same quarter.

ABS data shows the share of lending to investors rose from under 30% in 2020 to over 40%.

Reactions from Experts and Industry

Limited Impact Without Supply Boost

Tim Lawless, research director at Cotality, noted that while investor lending fell in the March quarter, owner-occupier lending fell by a greater margin. He stated that while the budget may reduce competition, first-home buyers still face financial and serviceability barriers, including the requirement to prove loan repayment ability at rates 3 percentage points higher.

Richard Holden, professor of economics at UNSW Business School, stated the negative gearing changes may "level the playing field" between owner-occupiers and investors, but added that neither change will significantly lower housing prices without increasing supply and lowering construction costs.

A Step in the Right Direction

Nick Garvin, research manager at the e61 Institute, described the tax changes as "a step in the right direction." He noted that future investors can still deduct rental losses against future capital gains, and that removing the CGT discount may reduce the incentive for high leverage.

Industry Skepticism

Jacob Caine, president of the Real Estate Institute of Australia, described the projected 75,000 new owner-occupiers over ten years as "dramatically short" of what is needed. He called for state and federal cooperation on stamp duty reform and increased supply.

Henny Rahardja, principal buyers' agent at OH Property Group, observed some overlap in target properties for investors and owner-occupiers but noted they often seek different features, such as low strata levies versus amenities.

Kristy Caskey, property advocate at The Property Bureau, stated that reducing investor activity could ease competition, but noted Melbourne first-home buyers already have access to low-deposit schemes and apartments with stagnant prices.

Reports of Reduced Lender Borrowing Capacity

Following the budget, multiple mortgage brokers reported that major Australian lenders began reassessing borrowing limits for property investors, factoring in the removal of negative gearing benefits from income calculations.

A borrower earning $100,000 per year could formerly access approximately $750,000 for an investment loan. They can now access approximately $600,000—a reduction of $150,000.

  • Alex Veljancevski, a NSW mortgage broker, reported the $150,000 reduction in borrowing capacity for a typical $100,000 earner.
  • Aidan Hartley from Owl Home Loans reported that some investors are facing up to a 30% reduction in borrowing power. He cited an investor previously eligible for over $1.1 million who can now borrow approximately $800,000.
  • Joseph Sukkar, a Sydney broker, stated that a client who had a pre-approval of $800,000 received a revised offer of approximately $500,000 after winning an auction. He advised investors not to rush into auctions during this period of uncertainty.
  • Alex Gee from Kingfisher Finance reported that credit assessors received internal communications that negative gearing could no longer be factored into serviceability calculations. He stated that pre-approvals were refused unless a contract had been signed pre-budget.

Brokers noted that these changes are being applied on a case-by-case basis, with some pre-approvals being revoked or reduced immediately, despite the tax changes not taking effect until July 2027.

Market Activity: Investor Caution and First-Home Buyer Interest

Real estate agents across Sydney and Melbourne reported a shift in market activity following the budget:

Investor Withdrawals

  • Elise Nemer (Jas Stephens Real Estate, Melbourne) reported that an investor who planned to bid on a property withdrew after the budget. She stated that inquiries are now coming more from first-home buyers or upsizers, with fewer from investors.
  • James Annett (Belle Property Armadale) reported that a buyer pulled out of an offer after the budget because they could no longer negatively gear the property, despite potential grandfathering.
  • Norman Tran (Adrian William Real Estate, Sydney) stated that the budget announcement gave investors reason to reassess plans, and he expects investors to be more specific in property selection.

First-Home Buyer Uptick

  • Luke Lombardi (Pulse Property Agents) noted an increase in first-home buyer interest, with multiple offers on properties that had been on the market for an extended time.
  • Nuri Shik (BresicWhitney East, Sydney) stated that the changes have incentivized first-home buyers, with many expressing a desire to stop renting and enter the market.
  • Walter Burfitt-Williams (Ray White Touma Taylor) stated that the major concern for first-home buyers is interest rates, not tax minimization.

Reports noted that investor home loan applications at brokerage Loan Market fell 23% in May, while first-home buyer applications fell 12%.

Off-the-Plan Apartment Performance

Separate analysis from multiple sources highlighted the historical resale performance of off-the-plan apartments.

  • Angie Zigomanis of Quantify Strategic Insights found that price changes between off-the-plan sale and subsequent resale were lower than for existing apartments sold and resold over the same period.
  • Tim Lawless (Cotality) reported that inner-city high-rise units in areas with high supply have experienced low or negative value change and a high portion of loss-making sales. Sydney Olympic Park unit values declined 15.1% over the past decade; Melbourne CBD units fell 8.4%.
  • In the December quarter of 2025, nearly half of units sold in the Melbourne local government area traded at a loss, and almost 29% in Parramatta, Sydney.
  • Michael Fotheringham of the Australian Housing and Urban Research Institute noted that studio apartments built in large numbers in Docklands did not appreciate, and that Melbourne built many apartments relative to other cities.

Political Reactions

  • Queensland Premier David Crisafulli expressed skepticism about the federal government's property tax changes, stating he wants to see economic modeling. He stated that any tax change should incentivize supply to help young people own homes.
  • Federal LNP counterpart Angus Taylor has vowed to repeal the changes if the Coalition forms government.
  • Senator Michelle Ananda-Rajah stated the changes are cooling the property market and allowing first-home buyers to compete.