Most people only heard one thing from the Reserve Bank on Cup Day: rates went up again, to 4.85%. The bigger story for anyone who builds homes was buried in the Bank’s Statement on Monetary Policy, released the same afternoon, and quite hard to find if you are not looking for it!
The Bank now expects dwelling investment, which is basically the amount of new home building and renovation going on, to shrink by 2.8% over 2027 and by 3.5% in the year to June 2028. Three months ago it was forecasting falls of less than 1%. That is a big downgrade, and it comes from people who are not prone to drama.
The investors have gone
Michele Bullock was unusually direct about why. She said investors had pulled back much further than in past rate-rise cycles and that “something else” was going on, and that something was the tax changes. She was careful to add that she couldn’t give a firm breakdown and that rates matter too. The Bank’s own statement says the fall in lending has been sharpest for investors and has been concentrated in loans for established homes.
The Treasurer has said worry about interest rates is one of the big drivers of the falls in the housing market. While the blame game is not often productive, this government must take some responsibility. Five rate rises this year plus the changes to negative gearing and capital gains tax have hit at the same time, and the people who used to buy a fair share of new homes have stepped back.
What the budget changes actually mean for new homes
The May budget made two big changes for property investors, and both are now law. From 1 July 2027, negative gearing on established homes bought after budget night is limited. Losses can only be offset against other residential property income and gains, not your wages. And the 50% capital gains tax discount is replaced with indexation for inflation, plus a minimum 30% tax on the real gain for individuals.
What has been lost in the noise is that neither of those changes hits new builds. Investors in new homes can still negatively gear them, before and after July 2027. On capital gains tax, investors in new builds can still choose the 50% discount, and those gains sit outside the new 30% minimum tax. The government says the whole point is to focus tax support on new supply.
What counts as a new build is still being finalised. The bill that sets the definition passed the House of Representatives last week and is now before the Senate. Treasury’s draft says a home is generally new if it genuinely adds to housing supply and you buy it within 24 months of the occupancy certificate being issued.
This is where I have a problem with the response
What we are actually seeing is investors walking away from property altogether, not switching to new homes. The changes were only announced in the May budget, they don’t start until next July, and rates are at their highest since 2008. Investors are sitting on their hands, and I can’t blame them, but they are wrong. Costs keep rising, and the tax rules still favour new builds on both negative gearing and capital gains tax. Investors should still be buying, and new homes are where the tax system now wants them.
I have always said when anyone asks me when is the best time to buy property, my answer is always yesterday, but the next best time is today. I stand by that, regardless of what you hear in the media.
Meanwhile the Housing Accord target of 1.2 million homes by mid 2029 was meant to need around 240,000 new homes a year, and more than that from here. HIA says we started about 204,500 in 2025/26. If the Reserve Bank is right and building shrinks through 2028, that gap gets wider, not smaller.
Costs are still going up
You would expect a slowdown to bring building costs down. The Reserve Bank says builders are now finding it harder to pass costs on in the states where demand has weakened, but new dwelling prices were still 5.2% higher over the year to September. The Reserve Bank says cost growth is still elevated across the economy. Waiting for prices to fall on a new build may not save you anything.
The Bank also flags that data centre construction may draw on the same construction workforce and materials. Add the state governments’ big infrastructure programs and home builders are competing with government and big tech for the same trades. I’ve seen this in previous downturns: when work dried up, trades moved to other industries, and when demand returned, builders couldn’t bring that capacity back quickly.
What I’d like to see
For government: if you want investors in new housing, say so clearly and loudly. Most investors I talk to don’t realise new builds keep negative gearing and the 50% capital gains tax discount. Back that up with planning approvals that move quickly and stop bidding up trade wages on public projects while you’re asking the private sector to build more homes.
For builders: keep your overheads tight, understand your pipeline and ensure you are watching cashflow carefully. A forecast like this one usually means 2027 will be harder than 2026.
For home buyers and investors: there is less competition for land, builders and trades than there has been for years, and the tax rules from July 2027 favour new homes over established ones on both negative gearing and capital gains tax. Get your own advice, but don’t let the headlines talk you out of building.
We can’t fix a housing shortage while home building is going backwards.
Related: Cup Day rate rise: Canberra spends, families pay and Before you sign with a builder: eight questions to ask in a falling market.
This is general information only, not financial or tax advice.
Darren Wallis is Chairman of G.J. Gardner Homes and was its CEO and Managing Director from 2000 to 2020.