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:
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:
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:
That means:
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:
Perth’s Rental Market Could Tighten Further
Perth is not Sydney or Melbourne.
The Perth market is currently being driven far more by:
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:
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:
That means rising rents can materially improve:
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:
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:
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:
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:
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:
At the same time, it is already experiencing:
If established investment stock becomes more tightly held because of grandfathering, turnover may slow significantly.
This could lead to:
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:
This matters because housing turnover supports:
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:
But there is an important caveat:
Construction still depends on:
Perth continues to face:
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:
The Budget Contains Some Positives
There are positive supply-side measures in the budget.
These include:
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:
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:
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.
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