Since May, most of the commentary on the Federal Budget’s negative gearing and capital gains tax reforms has focused on how much it will hurt. New analysis this week from Coolabah’s chief macro strategist Kieran Davies puts a number on that pain: for negatively geared investors, the combined effect of losing negative gearing on established property and swapping the 50% capital gains discount for cost base indexation and a 30% minimum tax rate is roughly equivalent to a 2 to 2.75 percentage point increase in their mortgage rate. Given negatively geared investors represent around a fifth of new lending, Davies estimates the market-wide effect lands somewhere near half a percentage point of RBA tightening, layered on top of the three rate rises already delivered this year.
That is a useful number. It is also the least interesting part of the story.
The more useful question is not how much this hurts. It is where the policy is trying to send capital, because tax settings like this are rarely just about revenue or fairness. They are steering mechanisms. And this one has a very specific direction built into it.
Negative gearing has not been abolished. It has been redirected. Investors who buy established dwellings after budget night lose the ability to offset losses against other income, full stop, once the July 2027 start date arrives. Investors who buy new builds do not. They keep negative gearing. They also get to choose between the old 50% CGT discount or the new indexed arrangement, whichever suits them better. Build to rent developments, and investment through widely held trusts and super funds, are carved out entirely. None of this is incidental. It is the policy doing exactly what it says on the label: rewarding investment in new supply, not simply reducing incentives across the board.
This is where most of the current commentary is missing the more important pattern. Framing the reform as a blanket headwind for property investors treats “investor” as a single category with a single outcome. It isn’t. An investor holding established dwellings bought before budget night is grandfathered and largely unaffected. An investor about to buy an established dwelling today is walking into a materially worse tax position than the one who buys new. Those are two very different positions inside what looks, from the outside, like one policy.
We have said before that there is no single Australian property market. The same is increasingly true of the investor cohort. The system is no longer treating “buy property” as one decision. It is treating “buy established” and “buy new” as two different decisions with two different sets of consequences, and it has built a multi-year cost differential between them.
That differential is the actual story, because it changes the maths on a decision that used to be largely about location and yield. From July 2027, choosing an established dwelling over a new build is not just a preference. It carries a structural tax cost that a new build does not. Over a ten or fifteen year hold, that is not a rounding error. It is a permanent tilt in the playing field, and it will show up in where capital actually flows long before it shows up in a headline about house prices.
This also lines up with a point we have made in this newsletter before: you cannot subtract your way out of a housing shortage. Removing negative gearing from established stock, on its own, does nothing to add a single dwelling to the national count. What it does is reduce investor competition for the existing pool of homes that owner-occupiers and first home buyers are also chasing, while simultaneously making new supply the more tax-efficient place for investor capital to land. Whether that succeeds in the way policymakers intend is a separate and genuinely open question. But the intent is not subtle once you read the mechanics rather than the headlines.
For investors, the temptation right now is to treat this as a reason to sit on the sidelines, or to relitigate whether the reform is fair. That is the trap. The need to be right about whether this policy is good or bad costs nothing compared to the cost of ignoring what it is actually going to do to capital flows over the next several years. The more productive question is not “will this hurt me,” but “which side of this new differential am I actually on, and does my strategy still make sense once that differential is priced in.”
The evidence points to a structural redirection, not a retreat from property as an asset class. Investors who spend the next twelve months arguing about the politics of the reform will still be arguing about it in 2027, when the new rules take effect regardless. Investors who spend that time working out how the new-build pathway now sits inside their broader strategy will be the ones the reform was actually designed to reward.
Your next steps?
Successful investors don’t just watch markets. They pay close attention to the incentives that shape them.
Every significant policy change alters the way capital is likely to flow. The question isn’t whether the rules have changed. It’s whether your strategy has changed with them.
If it’s been a while since you’ve reviewed your Journey to Freedom, perhaps it’s time for a Check Navigate. Reviewing your strategy in light of evolving tax policy, lending conditions and market dynamics isn’t about chasing headlines, it’s about ensuring your long-term plan continues to reflect the environment you’re investing in.
