Federal Budget 2026: Long-overdue shakeup, or giant rug pull?

The Federal Budget has delivered the most significant intervention in property taxation in decades, reshaping the rules for investors and first-home buyers and triggering urgent conversations across the mortgage industry.

Changes to negative gearing and the capital gains tax (CGT) discount – combined with new funding to unlock housing supply – mark a deliberate effort by the Albanese government to tilt the playing field toward owner-occupiers and first-home buyers, and away from investors in established dwellings.

Some are calling it the Budget of broken promises – prime minister Anthony Albanese, after all, promised no changes to property taxes before the election. But as inequality in housing becomes more entrenched, Labor deems it a necessary political risk to keep its core voter base on side.

A Budget for first-home buyers

From 1 July 2027, the existing 50% CGT discount for individuals, partnerships and trusts will be replaced with a cost-base indexation model, alongside a 30% minimum tax on net capital gains.

Negative gearing will also be restricted: investors purchasing properties from Budget night onwards will be unable to negatively gear against established dwellings. In-pipeline deals will be honoured. New builds, however, will retain that benefit.

For established residential properties:

• Properties held at announcement (including where a contract has been entered into but not yet settled) will be allowed to be negatively geared in future years until sold

• Properties purchased between the announcement and 30 June 2027 may be negatively geared during this period, but not from 1 July 2027

• Properties purchased from 1 July 2027 will not be able to be negatively geared

Cameron Kusher, chief economist at Herron Todd White – Australia's largest property valuation and advisory firm – offered a clear-cut view on the impact this will have on property investors.

"Investing in property has just become a lot more challenging," Kusher said. "Investors purchasing properties from tonight onwards can no longer negatively gear unless they purchase a new property, which in most instances is more expensive than an existing one.

"The removal of negative gearing and the changes to the capital gains tax discount will make investing in property, and other asset classes, much less attractive going forward."

The government's stated aim is to reduce competition between investors and first-home buyers in the established property market, and to incentivise new construction. Budget papers project the reforms will enable an extra 75,000 Australians to purchase their own home over the next decade, while supporting the construction of up to 30,000 new dwellings over the same period.

Kusher acknowledged the intent but provided important context on the scale. "Over the past decade, an average of 115,014 first-home buyers have entered the market each year, so the increase is really 7,500 more first-home buyers a year – or 6.5% more first-home buyers each year," he said.

Nonetheless, Kusher believes that post-Budget, first-home buyers will face reduced competition to purchase from investors. “This Budget is very much being pitched at helping younger Australians and in particular helping first-home buyers enter the housing market, whether that happens remains to be seen,” he said.

Mark Haron, executive director at mortgage aggregator Connective, said the Budget reflected a genuine desire to reshape how Australians approach property.

"This Budget is trying to shift how Australians approach property, particularly when it comes to investors and long-term affordability," Haron said. "Proposed changes to capital gains tax and negative gearing are expected to influence how people buy, invest and borrow."

Haron also believes first-home buyers are likely to face less competition from investors in established properties.

Investors, meanwhile, are likely to move towards new builds, where incentives still apply. This will further benefit owner-occupiers seeking to enter the established housing market.

“However, that competition doesn't disappear – it simply moves,” warned Aaron Bassin, chief executive and co-founder of bridging finance specialist Bridgit. “With investors concentrating on new builds, demand in that space is likely to rise, pushing up prices for new properties.”

Bassin predicts “a two-speed dynamic that will ultimately shape what owner-occupiers choose to pursue – whether that's an established home with less competition, or a new build where they may find themselves up against more buyers.”

The risks: rental supply and unintended consequences

Not everyone is convinced the reforms will achieve their goals without collateral damage. A central concern is the impact on rental supply, at a time when the vacancy rate remains critically low in most capital cities.

Kusher warned of a significant risk should investor demand pull back from the established property market.

"Changes to negative gearing arrangements will influence future investor demand for residential property, particularly when it comes to established housing, which represents the largest share of the market," he said.

"If investor demand falls away, there is a significant risk that fewer rental properties are added to the system, which could place additional pressure on already tight rental markets."

He also cautioned that historical investor behaviour may work against the policy's intent: "The policy intent is to encourage new housing supply, although investor preferences have historically favoured established dwellings due to pricing, yield and liquidity considerations, meaning behavioural outcomes may differ from policy expectations."

Bassin worries that the Budget will compound supply pressures in an already stretched market.

“The government's housing spend looks good on paper, but the things that actually get homes built haven't been fixed,” said Bassin. “Construction costs are still high, projects are stalling, and skilled trades are still in short supply. And by limiting negative gearing to new builds, there's a real risk that rental supply tightens in the short term, pushing rents higher and making it harder for buyers (especially first-home buyers), to save a deposit.”

Mortgage and Finance Association of Australia (MFAA) chief executive Anja Pannek echoed concerns about implementation.

"The test for these reforms is whether they improve access to housing in practice without reducing the flow of investment into new supply," Pannek said. "Any changes to negative gearing and capital gains tax need to be carefully calibrated to avoid unintended consequences for housing supply, rental availability and investor confidence."

One underexamined dimension of the reforms is where surplus capital may flow if residential investment becomes structurally less attractive. Kusher identified a possible pivot that could carry its own consequences for the housing market.

"A potential unintended consequence of the broader tax changes could be a gradual shift in capital allocation away from investment property and toward owner-occupied housing, including renovations and upgrades," he said.

"When investment becomes less tax-effective, property owners may redirect surplus capital into principal residences rather than investment properties, which in the long run will contribute to upward pressure on dwelling prices."

What the budget means for brokers

Barry Saoud, chief executive of mortgages and commercial lending at Pepper Money, framed the Budget as a trigger for structural change in how investor clients approach lending.

"With changes to capital gains tax, including a move from the 50% discount to inflation indexation from 2027, alongside tighter negative gearing settings, some investors may reassess the appeal of highly leveraged property investments held in personal names," Saoud said. "As a result, brokers can expect more conversations about how investments are structured, not just what is being bought."

Saoud said alternative ownership structures would attract growing interest from sophisticated investors. "For some investors, that will mean looking beyond individual ownership and becoming more comfortable with lending in companies, trusts and self-managed super funds."

On the construction opportunity created by the Budget's policy settings, Saoud highlighted the additional $2 billion in funding over four years to unlock new development and deliver up to 65,000 extra homes. “By limiting future negative gearing to new dwellings, policy settings actively steer investor demand toward construction and off-the-plan purchases,” said Saoud.

For brokers, “this is a clear signal to revisit construction finance capability”, Saoud continued. “Clients will increasingly need guidance on building, land-and-build packages and developer-led projects – and confidence that their broker understands the lending nuances involved."

Saoud's overall message for brokers was direct: "Change brings complexity, but it also brings opportunity. Brokers who invest in capability now, communicate clearly with clients and choose the right lender will be well placed to support investor clients."

Haron reinforced this, positioning the moment as a defining one for brokers who move early.

"Clients are trying to make sense of a lot at once, and they're looking for clear, practical guidance," he said. "Brokers who step in early, explain what's proposed in plain terms, and help clients work through their options will be the ones who build trust and stay ahead."

A giant rug pull?

Bassin argued the reforms “pull the rug out” from under a cohort that wasn't speculating – they were planning for retirement.

"For many, this wasn't about building a large portfolio, it was about securing their retirement through equity. That pathway has now become significantly harder to navigate,” he said.

With roughly one in three property owners also holding an investment property, and property accounting for around 70% of Australian household wealth, Bassin warned the human cost of these changes is being underestimated.

“There's no question that first-home buyers needed support, and this Budget does skew in their favour, which is understandable given the scale of the affordability crisis facing that segment of the market,” said Bassin.

However, he doesn’t believe these changes will deliver the outcomes the government is looking for, saying: “Property prices are unlikely to become meaningfully more affordable as a result, investors will largely hold rather than sell, supply will remain constrained, and the structural issues driving unaffordability will persist.”

The data makes clear just how much the broker community will need to adapt. In 2025, 83% of new investor loans went toward established properties rather than new builds – a concentration of activity that is about to shift dramatically.

Bassin said the complexity created by the Budget is precisely where brokers earn their stripes. "The brokers who take the time to deeply understand the implications of this Budget – and who can translate that into clear, actionable advice – will be the ones who stand out and thrive in this market.”

That means moving beyond transactional support. Brokers will need to run capital gains tax calculations, model different purchasing strategies, and guide clients through scenarios that account for the new rules. It is strategic work, not administrative.

"The complexity isn't going away," Bassin said. "If anything, it's increasing. And that's exactly where a great broker earns their value."