What the 2026 Federal Budget means for housing, construction and investment into the sector

Australia’s housing challenge remains front and centre, but the 2026 Federal Budget signals a clear shift in how the Government wants to respond. Rather than relying on short-term price relief, the package is designed to reshape incentives across the market by directing capital toward new housing supply, reducing competition for established homes and supporting longer-term rental stock. For developers, investors and construction businesses, the key question is not simply what was announced, but whether these measures can translate into more homes delivered in a market still constrained by cost, capacity and planning bottlenecks.

Housing supply at the centre

The Government has framed this as an intergenerational response to housing affordability, with the strongest policy signal aimed at supply and access rather than immediate price reductions. In practice, the Budget seeks to influence what gets built, who competes for existing housing stock and where investment capital is deployed. That matters because affordability will not improve sustainably without an increase in supply, particularly in markets where delivery feasibility is already under pressure.

What the tax changes could mean for first home buyers

A key Budget claim is that the housing tax reforms could help around 75,000 more Australians into home ownership over the next decade. That estimate reflects the Government’s view that reducing the tax advantage attached to established investment properties will ease competitive pressure in parts of the market where first home buyers and investors are currently competing most directly.

Shifting investment incentives in established housing

From 1 July 2027, negative gearing is proposed to be limited to new residential properties. Established residential properties acquired after Budget night would no longer allow rental losses to be deducted against broader income, such as wages, although those losses could still be offset against residential property income and carried forward. Existing holdings are proposed to be grandfathered, which is intended to reduce market disruption while changing the incentives for future investment.

The Budget also proposes to replace the current 50 per cent capital gains tax (CGT) discount for individuals, trusts and partnerships with cost base indexation and a 30 per cent minimum tax rate on capital gains from 1 July 2027. Importantly, the change is prospective, applying only to gains accruing after that date. Investors in eligible new builds are proposed to be able to choose between the existing discount and the new indexation method, reinforcing the broader supply-side policy intent.

The contrast in treatment across investor types is also significant. For a typical individual investor, including many ‘mum and dad’ investors, the proposed minimum 30 per cent tax on capital gains would represent a meaningful change to the after-tax economics of established residential property. By comparison, certain managed investment trusts that hold property, derive rental income and realise capital gains may still be able to distribute to foreign investors at concessional withholding rates of 15 per cent where the investor is resident in an exchange of information jurisdiction, or 30 per cent where they are not. This reinforces the prospect of capital shifting away from smaller individual investors and toward larger or more structured investment vehicles.

Why the impact for first home buyers is likely to be gradual

For first home buyers, the practical effect may be a modest easing in investor demand for established dwellings rather than a sharp correction in prices. Treasury modelling reported in post-Budget coverage points to slower house price growth, not an immediate fall in values across the market. That distinction is important for businesses assessing how quickly any affordability benefit may flow through to demand, project feasibility and buyer behaviour.

The broader message is that affordability gains are likely to be indirect and gradual. Unless supply can respond at scale, tax reform alone is unlikely to meaningfully reset housing accessibility in the near term.

Short-term pressure points for renters

One of the main risks in the transition is the rental market. Government modelling reported publicly suggests rents could be slightly higher than they otherwise would have been in the short term as the market adjusts to the new settings. That highlights the delicate balance in the reforms: reducing speculative demand for established dwellings may help first home buyers over time, but any disruption to rental supply can place added pressure on households already facing tight vacancy conditions.

This is particularly relevant for younger households and so-called ‘rentvestors’, who may still be locked out of the owner-occupier market while remaining exposed to rental cost pressure. Although the main residence CGT exemption remains unchanged, the Budget clearly attempts to address intergenerational equity by shifting policy support toward access and new supply. Whether that translates into better outcomes for renters will depend heavily on the pace at which replacement rental stock is delivered.

Investor capital is likely to shift, not disappear

The reforms are better understood as a reallocation of investor capital than a simple withdrawal from housing altogether. By making established dwellings less attractive on an after-tax basis for new investors, the Budget increases the relative appeal of new builds and other product types aligned with additional supply. That could gradually reshape the investor mix across markets, particularly where planning support, infrastructure and development feasibility make new delivery more achievable.

For property and construction businesses, this means capital may increasingly favour greenfield corridors, infill precincts with stronger planning pathways and purpose-built rental products. Over time, institutional and mid-market investors may play a larger role in funding projects that can demonstrate certainty, scale and long-term operating resilience.

Grandfathering supports stability, but supply still needs to follow

A notable feature of the package is that it attempts to change future behaviour without triggering unnecessary disruption in the current market. Existing property holdings are proposed to be exempt from the negative gearing changes, while the CGT reform applies only to gains accruing after 1 July 2027. That forward-looking design reduces the risk of forced selling and avoids a sudden cliff effect for current investors. It also highlights that the practical impact of the reforms will depend not just on headline policy settings, but on how easily investors and businesses can respond to them.

Even so, preserving stability and enabling restructuring are only part of the equation. The success of the reforms will ultimately depend on whether redirected investment can move through the development pipeline and convert into completed housing stock at the pace the market needs.

Developers, Build to Rent and institutional capital may benefit most

For developers, the clearest implication is that tax preferences are being redirected toward construction activity rather than passive investment in existing stock. The Budget factsheet also indicates that widely held trusts and superannuation funds are excluded from the negative gearing changes, meaning institutional capital is comparatively shielded from the policy shift. That creates a stronger relative position for larger-scale investors and delivery models that can support new supply.

Build to Rent (BtR) also stands out as a likely beneficiary. The policy settings favour long-term rental supply and new construction, which aligns closely with the BtR model. For businesses already assessing opportunities in this space, greater policy certainty could improve the underwriting case for projects that deliver scale, operational consistency and long-dated rental income.

This also reinforces the importance of feasibility settings beyond tax. Institutional appetite alone will not unlock supply if planning pathways remain uncertain, infrastructure is delayed or construction margins remain under pressure.

Productivity reform remains critical to delivery

While the Budget contains familiar language around reducing red tape and speeding up approvals, productivity remains one of the sector’s biggest unresolved issues. Tax reform can redirect capital, but it cannot remove delivery bottlenecks on its own. For the construction industry, feasibility is still being shaped by labour availability, borrowing costs, procurement challenges, approval timeframes and project complexity.

That is why innovation remains a critical part of the response. Businesses that invest in digital capability, better coordination, more efficient delivery models and stronger project controls are likely to be better placed to respond as market settings evolve.

The Budget’s support for modular and modern methods of construction is therefore worth watching closely. A national voluntary certification scheme and greater regulatory neutrality between modular and traditional construction methods could help reduce friction for adoption, particularly in housing segments where repeatability, speed and standardisation matter most.

Foreign investment settings still matter for market confidence

The Budget also extends the temporary ban on foreign purchases of established dwellings until 30 June 2029, while maintaining limited exceptions that support additional housing supply. At the same time, the Government has pointed to faster processing for lower-risk approvals. For offshore and institutional investors, the broader issue will be confidence and certainty. Faster decisions can help, but frequent policy change across tax and investment settings can still shape perceptions of sovereign risk and influence where long-term capital is willing to flow.

Sustainability obligations should stay on the radar

Beyond housing tax reform, sustainability reporting remains an important strategic issue for the sector. Under the current phased climate-related financial disclosure regime, Group 3 entities are generally those meeting at least two of the following thresholds: consolidated revenue of at least $50 million, consolidated gross assets of at least $25 million and 100 or more employees, with reporting commencing for many entities from financial years starting on or after 1 July 2027. While commentary may continue around possible threshold adjustments, businesses should plan on the basis of the rules currently in force and continue building reporting capability now.

What businesses should watch next

Overall, the 2026 Federal Budget represents a significant attempt to redirect housing investment toward new supply, moderate investor demand for established homes and encourage longer-term rental delivery. But the market impact will depend less on the policy signal itself and more on execution. Planning delays, infrastructure gaps, construction costs and productivity constraints still pose material barriers to delivery. For developers, investors and construction businesses, the immediate priority is to understand how capital allocation, project feasibility and buyer demand may shift as these measures progress.

How BDO can help

BDO’s real estate and construction team can help you assess how the Federal Budget measures may affect your strategy, investment decisions and project pipeline. Working with our specialists across tax, advisory and audit, we support clients with transaction structuring, feasibility and funding considerations, capital and investment decisions, growth planning, risk management and sustainability reporting obligations. Contact us to discuss what these changes could mean for your business.