Housing has been the centrepiece of the debate around the federal budget 2026/27. The Government has offered supply sweeteners in the form of infrastructure commitments that are estimated to drive the construction of 65,000 new homes over the next decade. Unfortunately, this will be offset by the impact of their changes to negative gearing and capital gains tax settings, which Treasury estimates would see 35,000 fewer new homes built over the next decade.

Housing was also front-of-mind for the federal Opposition’s Budget in Reply. They have committed to repealing the Government’s changes to negative gearing and capital gains tax arrangements, increasing the instant asset write-off value to $50,000 (up from the Government’s $20,000), simplifying government regulations on business, building and environmental protections, investing $5 billion in trunk infrastructure (up from the Government’s $2 billion) and linking migration to new housing construction.

CGT and negative gearing

The Government’s changes mean that for investment properties purchased after Budget Night 2026, capital gains tax would be calculated on the real return through the cost base indexation method with a minimum 30 per cent tax rate on capital gains. Nominal price gains would be adjusted using the Consumer Price Index (CPI) rather than applying a 50 per cent discount on the nominal gains.

Changes to negative gearing mean that property investors could no longer offset their losses against their other income. Instead, investors could carry their losses forward to future financial years or when the asset is disposed of and incurs capital gains tax. What this means is that the Government has changed the timing of when investors could offset rental losses.

On capital gains, the argument put forward by the Government has been that the 50 per cent discount has overcompensated investors for the inflation component of their capital gains. Treasury’s computations in the chart (on the opposite page) show that since 2000, house and unit price growth adjusted for inflation were higher than assumed under the 50 per cent discount rule.

There have also been periods where the discount has undercompensated investors for inflation, meaning they paid more tax than they otherwise would have under CPI indexation.

Grandfathering arrangements were also put in place, meaning properties purchased prior to Budget Night 2026 are still subject to the old rules around negative gearing and capital gains tax. Exemptions have also been made for investors in new housing, which are subject to the pre-budget arrangements.

What are the outcomes?

These changes mean that there would be a reduction in housing investment, as they increase the cost of investment and reduce its attractiveness as an asset class. Housing finance figures pre-dating the budget show that 42.6 per cent of loans for new dwelling purchase and construction were issued to investors in the March quarter of 2026 (see chart above). If the goal is to reduce investor participation in the established market by increasing their participation in the new home market, just what share of investor new builds is the goal?

Scale of the housing shortage

Besides changes to investor taxes, there are several budget measures that recognise the scale of the housing shortage and the need to unlock more supply. This includes funding for enabling infrastructure, faster environmental approvals, support for modern methods of construction and steps to improve access to skilled labour. The budget has also committed to making mandatory standards more accessible.

The strongest element is its recognition that new housing cannot be delivered without the basic infrastructure that makes land shovel-ready. The additional $2 billion in housing-enabling infrastructure such as water, sewerage and roads is a practical measure with real potential. It is also fantastic value for money where, for a mere investment of $30,000, the government gets a half-million-dollar home built.

Excessive charges for infrastructure have been a barrier to lowering the cost of land. The price of a typical residential lot has increased more than six-fold since 2000, more than triple the rate of building costs from materials and labour.

Modernising environmental approvals

Equally important is the $500 million funding to improve environmental approval processes under the Environment Protection and Biodiversity Conservation (EPBC) framework. The housing industry has consistently argued for a system that protects the environment while also allowing necessary housing and infrastructure to proceed without needless duplication, administrative drift and delays, all of which add costs to the end home buyer.

There are also broader business settings in the budget that will matter to the residential building sector. The permanent $20,000 instant asset write-off for small business provides welcome certainty for many trade and construction businesses operating on tight margins.

Skills policy is another area where the federal budget contains useful measures. Faster skills assessments for migrant tradies, streamlined pathways to occupational licensing, recognition of prior learning and continued support for apprenticeships all respond to industry concerns that the pipeline of labour is too slow, too fragmented and too narrow.

Net overseas migration elevated

Housing targets are meaningless unless there are enough qualified people to build the homes. Australia cannot meet demand without a bigger and more responsive workforce across the full residential construction chain, from site preparation and civil works to carpentry, plumbing, electrical and finishing trades.

Every delay in getting skilled workers onsite ultimately delays the supply response. This matters even more when set against the budget’s population forecasts.

Net overseas migration remains elevated in the near term, and Australia’s population continues to expand across every state and territory. Historically, budget projections of population and net overseas migration have been below actual numbers, as shown in the chart above. The industry has repeatedly made the point that housing policy cannot be separated from stable and reliable population settings.

Ultimately, this budget shows that the Government increasingly understands the housing crisis is, at its core, a supply crisis. That is progress. But understanding the problem is not the same as solving it. Australia still needs a relentless focus on the practical reforms that allow more homes to be built; serviced land, faster approvals, consistent rules, a larger skilled workforce and policy settings that encourage investment in new supply.

HIA’s longstanding view is that the best way to improve affordability is to increase the supply of residential properties across the continuum, not to rely on policies that merely reshuffle demand within an undersupplied market.

Investment in enabling infrastructure, planning reform, faster approvals, a stronger workforce and lower compliance costs all help expand the number of homes available. By contrast, policies that tax investment more without fixing structural barriers risk worsening the problem.

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