Under the 2026 negative gearing reform, first-home buyers and investors purchasing newly built homes are expected to benefit the most. In contrast, investors who own or plan to buy established properties may face fewer tax advantages.
These changes are likely to influence where investors put their money. This could then change buying and selling patterns across Australia’s property market from 1 July 2027.
Honestly, the timing of these changes is not surprising. Housing affordability in Australia has fallen to record lows. In fact, only 14 per cent of households earning the median income can now afford a home.
And that growing pressure pushed the government to act with tax reform targeting negative gearing and capital gains tax.
So let’s break down further who is likely to gain, who needs to rethink their investment property plans, and what these changes mean for Australia’s housing market.
Property Reform Impact of Negative Gearing, Capital Gains Tax and Property Tax Changes
The 2026 budget introduced three connected tax changes that will change how property investors buy, hold, and sell assets in Australia. Here’s a closer look at each one, and what it could mean for you.
What Is Negative Gearing and Why Do Property Investors Use It?
Negative gearing happens when your rental property costs more to run than the rent it brings in. That difference between your expenses and your rental income creates a loss on paper.
Now, under the current Australian tax system, property investors can offset that loss against other income, like wages. So if you earn $100,000 in salary and lose $10,000 on your rental property, you’ll only pay tax on $90,000. That’s a lower taxable income and a smaller tax bill.
But why would anyone want to lose money on purpose? Because many investors accept short-term rental losses in exchange for long-term capital gain.
Simply put, costs like loan interest, property management fees, and maintenance can reduce or even outweigh rental income. However, if the investment property grows in value over time, the profit at sale can make up for those yearly losses.
How Capital Gains Tax and the CGT Discount Influence Investment Decisions
Capital gains tax applies when you sell an asset for more than you paid. In Australia, if you hold that asset for over 12 months, you currently pay tax on only half the profit. That’s the 50 per cent CGT discount, introduced in 1999.
For example, if you buy a property for $500,000 and later sell it for $700,000, your capital gain is $200,000. With the CGT discount, you’ll only pay tax on $100,000 of that profit. The rest is tax-free.
That discount has influenced how many property investors plan their strategy. And so, many choose to buy, hold, and wait for a big capital gain at sale. It pairs nicely with negative gearing, too. Investors tolerate yearly losses because they expect a tax-favoured profit down the line.
Why Governments Consider Property Tax Reform
Housing prices in Australia have outpaced wages for over a decade. In fact, the national median dwelling value hit $922,838 in early 2026.
This is a 400 per cent increase in housing prices since the CGT discount was introduced in 1999. Because of this long-term rise in prices, home ownership now feels out of reach for many young Australians more than ever.
On the budget side, the cost is also growing fast. A state government submission reported that the CGT discount cost around $21.8 billion in foregone tax revenue in 2025-26 alone. Around 83 per cent of that benefit goes to the top 10 per cent of income earners.
For policy makers, that combination of a stressed housing market and shrinking revenue creates a strong case for property tax reform.
What Proposed CGT Changes and Negative Gearing Reforms Could Look Like
The Albanese government’s 2026 budget laid out several specific reforms. This is how each one will work in practice:
- Limiting Concessions to New Housing: From 1 July 2027, investors who buy established residential property won’t be able to offset rental losses against wages or other income. Only rental income can absorb those losses. However, new builds remain completely exempt from this change.
- Replacing the CGT Discount With Indexation: The government is removing the 50 per cent capital gains tax (CGT) discount. In its place, it’ll index the cost base of assets to inflation (which reduces how much taxable profit is counted over time). On top of that, a minimum 30 per cent tax on capital gains will apply from 1 July 2027.
- Exploring Land Tax as a Stamp Duty Alternative: Some states are already looking at scrapping stamp duty in favour of an annual land tax. For homeowners, this would remove the high upfront cost of buying and make it easier to move when life circumstances change.
- Protecting Current Investors: If you bought your property before 7:30 pm on 12 May 2026, nothing changes. You keep the current negative gearing and CGT rules for as long as you hold that asset.
Together, these reforms aim to redirect investment towards new housing and reduce speculative demand on established homes.
Negative Gearing Winners and Losers: The Groups Most Likely to Benefit or Feel the Impact
The negative gearing reform will create clear winners and losers. As we mentioned before, first home buyers, existing landlords, and the government stand to gain the most. And new investors, highly leveraged property owners, and some renters face tougher conditions.
Let’s walk through each group.
Winner #1: First Home Buyers
Fewer investors in the market means less competition for first-home buyers. In late 2025, investors made up about 40 per cent of all new housing loans. This is almost double the share of first-home buyer loans during the same period. With negative gearing now limited to new builds, a good chunk of those investors will look elsewhere.
That shift opens the door for people trying to buy their first home. In fact, the government expects about 75,000 young Australians to benefit from the reform. CBA (Commonwealth Bank of Australia) also predicts housing prices could end up about 3 per cent lower than they would have been without the changes.
While yes, this won’t fix the housing crisis overnight, even a small easing in prices gives home buyers a better chance of getting into homeownership. This is particularly true in cities like Sydney and Melbourne, where affordability is stretched compared to the rest of the country.
Winner #2: Existing Landlords
As we mentioned, if you already own rental properties and bought before 7:30 pm on 12 May 2026, you keep all your current tax exemptions. That includes the full negative gearing and the 50 per cent CGT discount on established properties, for as long as you hold them.
As a result, fewer new investors will be entering the market for those same types of homes. That means less competition for tenants, which could push rental yields higher over time.
In fact, the latest SQM Research show that landlords who already hold grandfathered properties sit in a stronger position than new investors buying similar properties. Very low rental vacancy rates reinforce this trend.
As of early 2026, vacancy rates sit at:
- 0.9 per cent in Brisbane
- 0.6 per cent in Perth
- 0.8 per cent in Adelaide
With such a tight supply, strong demand for existing rental properties is not expected to ease any time soon.
Winner #3: Government and Tax Reform Advocates
The Albanese government stands to gain on two fronts.
First, there is the fiscal impact. As noted earlier, the CGT discount reduces government revenue by tens of billions each year, with most of the benefit flowing to higher-income earners. Rolling back this discount would free up a large amount of budget capacity for other priorities.
Second, the reform allows the government to redirect those funds toward other priorities. The 2026 budget already includes a $2 billion Local Infrastructure Fund and extra support for social housing.
For tax reform advocates, the fairness argument is strong, too. After all, tax settings that mainly benefit higher-income Australians are harder to justify when younger people struggle to afford homes. This reform gives the government both the revenue and the political ground to act on housing.
Group Most Affected #1: New Property Investors
New investors buying established residential property after the budget announcement night face a very different set of rules. From 1 July 2027, they won’t be able to deduct rental losses against wages or other income. This strips away the main tax advantage that made negative gearing so popular for decades.
Without that deduction, many investors will now rely more heavily on strong capital gains at sale just to cover their holding costs. At the same time, the CGT discount is also changing, moving from a flat 50 per cent to inflation indexing with a 30 per cent minimum tax. The combination means lower after-tax returns on investment property, especially for those in higher tax brackets.
Our advice: If you’re thinking about buying an older home as an investment, you’ll want to run the numbers carefully and talk to a tax adviser before committing.
Group Most Affected #2: Highly Leveraged Investors
Many investors use interest-only loans to maximise their negative gearing benefits. This strategy worked well under the old rules because a larger loan created a larger deductible loss. However, with those deductions now limited, cash flow looks very different.
Asset holders must cover any shortfall between rent and expenses from their own pocket. For highly leveraged investors, this extra cost can become the deciding factor between holding and selling. Unfortunately, the risk gets worse in a rising interest rate environment, with the RBA (Reserve Bank of Australia) cash rate at 4.10 per cent as of early 2026.
This means property buyers who take on too much debt without planning for tax changes are the ones most likely to feel the pressure.
Group Most Affected #3: Some Renters
Renters sit right in the middle of this debate. The government’s own modelling says rent will rise by less than $2 a week under the reforms. That sounds manageable, especially for tenants in cities like Melbourne, where rental markets have some breathing room.
But not every expert agrees with that figure. AMP chief economist Shane Oliver warned the changes could put upward pressure on rents. This is particularly relevant in cities with tight rental housing supply, like Brisbane and the Gold Coast.
The Housing Industry Association went further. They argued that fewer investors means fewer homes for tenants (especially in areas where the national vacancy rate already sits below 1 per cent).
On the other hand, the Grattan Institute expects only a minimal impact on rents. In their view, the changes are more likely to improve housing affordability for buyers than significantly affect rental costs.
Because of these different views, the real outcome will likely depend on how quickly new housing supply comes onto the market in each city.
Property vs. Other Investments After Reform
With property tax benefits becoming smaller, some investors are starting to look at other investment options.
The share market and ETFs, for example, don’t come with the same ongoing holding costs as rental properties. At the same time, capital gains on these assets still receive the current CGT treatment when held for more than 12 months (at least for now).
Commercial property is worth a look too. It sits completely outside the negative gearing changes, so businesses and investors with enough capital may find better profit margins there. Plus, mortgage brokers and property businesses are reporting a shift in client conversations. More buyers are asking about new builds and commercial options instead of established homes.
For those who stay in residential property, spreading money across different asset classes could help manage risk.
Regional Winners and Affected Areas
The reform won’t hit every part of Australia the same way. Sydney and Melbourne will likely feel the impact more because they have the highest property values and the most investor activity.
CBA, in fact, expects house price growth in these cities to slow by about 1 percentage point through 2027. That might not sound like much, but on a $1.3 million median house price, even small changes carry weight.
Regional Australia, like Newcastle, Wollongong, Townsville, and Rockhampton, may feel the impact as well. In these areas, land is cheaper and new development pipelines are already limited, so fewer investors could slow down the supply of new homes. Different stamp duty and land tax settings across states and territories will also influence how each region responds to the reforms.
The Real Winners and Losers Depend on the Final Policy Design
Ultimately, who really comes out ahead from the negative gearing reform depends on the final details.
First home buyers should benefit from less competition in the housing market. Existing landlords are also likely to remain in a strong position because of grandfathered tax rules. And the government could gain billions in extra budget revenue.
However, the picture is not entirely positive. New property investors now face tighter rules and lower potential returns. Some renters could also feel pressure if fewer investors lead to fewer rental homes. Overall, housing prices and market behaviour remain uncertain until the reforms pass through Parliament and take full effect.
If you want to stay across property, tax, and investment news in Australia, keep reading at Australian Business Magazine.
Property Reform Impact FAQ
Still have questions about how the negative gearing and tax changes could affect you? Here are quick answers to the most common ones.
Will Negative Gearing Changes Reduce Housing Prices In Australia?
Probably a little, but don’t expect a big drop. CBA forecasts property values could be about 3 per cent lower than they would have been. That helps first home buyers, but prices depend on supply, demand, and how quickly new housing gets funded and built.
What Happens To Existing Investment Property Owners If The Rules Change?
If you bought before budget night, you’re protected. Existing investors keep full negative gearing and CGT exemptions on their current holdings. You can still claim losses against other income and access the same finance arrangements until you sell the property.
How Could Property Tax Reform Affect Homeowners Who Do Not Own Rental Properties?
Owner-occupiers are mostly unaffected. The main residence capital gains tax exemption hasn’t changed. But if your state or territory moves from stamp duty to annual land tax, your ongoing costs for land and property could shift. Businesses and homeowners in different states should watch for local changes, too.
Why Do Economists Disagree About The Impact Of Negative Gearing Reform?
Because the data points are in different directions. Some economists act on modelling that shows the reform will be close to revenue neutral with minimal rent increases. Others argue it could tighten supply and push rents up. The disagreement comes down to different assumptions about how investors and the government will respond.
