Federal Budget 2026: Housing Tax Reform Shifts the Pressure, It Doesn’t Solve It

The 2026 Federal Budget has confirmed one of the most significant shifts in Australian housing tax policy in decades, with negative gearing to be limited to new builds and major changes proposed to capital gains tax treatment.

The government’s intent is clear:

• reduce investor competition for established homes,
• redirect investment into new housing supply,
• and improve affordability for first-home buyers.

Politically, the policy is simple to explain. Economically, however, the housing market is far more complex.

Australia’s affordability problem is not simply the result of investors buying established homes. It is fundamentally the result of not enough homes being built in the locations where people actually need to live.

These reforms do not remove housing pressure. In many cases, they risk shifting that pressure from house prices into rents. Perth particularly in established middle-ring areas like the City of Belmont the effects may become especially pronounced.

What Has Changed?

Under the proposed reforms:

• negative gearing will be limited to new builds from 1 July 2027,
• established properties acquired before 7:30pm AEST on 12 May 2026 will be grandfathered until sold,
• while established properties acquired after that time will move into the new rules from 1 July 2027.

The government has also proposed replacing the current 50 per cent capital gains tax discount with an inflation-indexed cost-base system combined with a 30 per cent minimum tax on net capital gains.

Together, the changes are designed to reduce the tax advantage of investing in established housing and redirect investor demand toward new construction.

The Pressure Doesn’t Disappear — It Shifts

The core risk with these changes is that they do not remove housing demand or affordability pressure. They simply change where it appears.

If investor demand for established homes weakens:

• some buyers may face less competition,
• but many existing investors are also likely to hold properties longer because of grandfathering.

That means:

• fewer investment properties may come to market,
• fewer landlords may sell,
• and established rental stock may tighten.

The result is that housing pressure may increasingly shift from purchase prices to rental prices.

This is particularly important in Perth because the city already faces:

• extremely low vacancy rates,
• strong migration,
• limited construction capacity,
• and ongoing housing undersupply.

Perth’s Rental Market Could Tighten Further

Perth is not Sydney or Melbourne.

The Perth market is currently being driven far more by:

• undersupply,
• affordability,
• rental demand,
• and population growth than by speculative investor activity.

If investor participation in established housing weakens while population growth continues, Perth’s rental market may tighten even further.

That could place continued upward pressure on:

• rents,
• yields,
• and tenant competition.

Importantly, rising rents also mean rising investor returns. This is where Perth differs significantly from many eastern-state markets.

Many Perth investors are increasingly achieving:

• strong rental yields,
• improved cash flow,
• and near-neutral or positively geared properties.

That means rising rents can materially improve:

• holding affordability,
• investment sustainability,
• and long-term cash-flow performance.

For Perth landlords and property managers, that may strengthen portfolio income and reduce investor attrition. For renters, however, affordability pressure may worsen.

The Melbourne Warning

Victoria provides a real-world warning about what can happen when investor participation weakens.

A combination of:

• increased land tax,
• higher holding costs,
• tighter rental regulation,
• and policy changes

Lead to a measurable reduction in rental supply.

Active residential rental bonds reportedly fell by more than 20,000 properties over a 12-month period. The result was not necessarily dramatically cheaper housing overall.

Instead:

• house-price growth softened, while
• rents rose sharply.

Melbourne house prices have been relatively subdued over recent years, yet rents have surged by roughly 35 percent over five years. That is not affordability disappearing. It is affordability shifting from buyers onto renters.

Rental Supply Is Not Interchangeable

One of the biggest assumptions behind the reforms is that rental supply can simply relocate into new-build markets. But housing is not perfectly interchangeable.

A new apartment in an outer growth corridor does not necessarily replace:

• an established rental near a school,
• a transport corridor,
• a hospital,
• or a major employment hub.

This is particularly relevant in Perth’s middle-ring suburbs.

Areas within the City of Belmont  including Cloverdale, Rivervale, Redcliffe, Kewdale and Belmont continue to attract strong rental demand because of:

• CBD access,
• airport connectivity,
• infrastructure,
• transport access,
• and employment proximity.

If investor participation weakens in established middle-ring areas while new supply concentrates further from employment hubs, rental pressure may intensify in the locations tenants most want to live.

The City of Belmont Could Be Strongly Affected

The City of Belmont sits directly within this dynamic.

The City of Belmont continues to offer:

• relative affordability,
• redevelopment potential,
• strong rental yields,
• and strategic infrastructure positioning.

At the same time, it is already experiencing:

• rising rents,
• strong tenant demand,
• and ongoing investor interest.

If established investment stock becomes more tightly held because of grandfathering, turnover may slow significantly.

This could lead to:

• fewer listings,
• reduced rental availability,
• stronger rents,
• and increased strategic value for development-capable land.

Transaction Volumes May Fall

One of the less discussed consequences of the reforms is the likely impact on turnover.

If investors are discouraged from buying established properties a major buyer group becomes smaller. At the same time grandfathered investors may hold properties longer because selling means losing their tax treatment.

That combination creates:

• lower turnover,
• fewer transactions,
• and reduced market liquidity.

This matters because housing turnover supports:

• agents,
• mortgage brokers,
• conveyancers,
• trades,
• removalists,
• and retail spending.

Even if prices remain resilient, lower transaction activity still has broader economic effects.

Development Sites May Become More Valuable

Because the reforms strongly favour new housing, development-capable land may become increasingly strategic.

In Perth, particularly in areas within the City of Belmont, this could support:

• duplex and triplex sites,
• grouped dwellings,
• townhouse developments,
• infill projects,
• and medium-density redevelopment opportunities

But there is an important caveat:

• Tax incentives alone do not guarantee new housing supply.

Construction still depends on:

• labour availability,
• feasibility,
• infrastructure,
• planning approvals,
• and finance.

Perth continues to face:

• labour shortages,
• rising build costs,
• and capacity constraints.

That means redirecting investor demand toward new housing may not automatically deliver the supply response policymakers hope for.

Rentvesting Could Become Harder

The reforms may also weaken one of the few remaining entry pathways for young Australians. Many younger buyers cannot afford to buy where they currently live.

Rentvesting has allowed some to continue renting near employment or lifestyle areas, purchasing a more affordable investment property elsewhere. Restricting negative gearing to new builds narrows that pathway.

Older generations were often able to build wealth through established property under the existing tax system.

Younger Australians may increasingly face:

• higher deposits,
• fewer investment options,
• and delayed entry into the market.

The Budget Contains Some Positives

There are positive supply-side measures in the budget.

These include:

• infrastructure funding,
• apprenticeship incentives,
• construction workforce initiatives,
• and efforts to improve planning and approvals.

These are important because Australia’s housing problem is fundamentally a supply problem. But supply-side solutions take time. New apprentices take years to become productive tradespeople. Infrastructure takes years to deliver.

The new housing projects still need:

• labour,
• finance,
• feasibility,
• and viable end values.

Final Thoughts

The Federal Budget represents a major philosophical shift in Australian housing policy. But housing markets are dynamic systems. Reducing investor demand does not automatically improve affordability if rental supply tightens at the same time.

In Perth, where undersupply remains severe, the likely outcomes may include:

• tighter rental markets,
• rising rents,
• lower turnover,
• stronger investor holding behaviour,
• and increasing strategic value for redevelopment-capable land.

Rather than eliminating housing pressure, the reforms may simply move that pressure from buyers to renters. In established middle-ring Perth suburbs within the City of Belmont, that shift could become particularly visible over the next decade.

Andrew Huggins is Principal of Ray White Urban Springs, the top real estate agent in the City of Belmont for over 20 years. He writes about Perth property trends, WA real estate insights, Australian housing supply and demand, and long-term investment strategy.