The taxation reforms outlined in the 2026-27 Federal Budget are designed to deter investment, ostensibly to level the playing field for first homebuyers. However, when you look beyond the political spin, these changes will do little to assist first homebuyers and, in some cases, may even intensify competition with investors.
Affordability Remains a Key Issue
Affordability is a critical concern for first homebuyers, and modifications to the capital gains tax discount and negative gearing are unlikely to reduce property prices. The Federal Government anticipates a decline in investor demand, which it claims will result in a modest and temporary slowdown in price growth. Yet, it still expects prices to rise over the next couple of years, albeit by two per cent less than without the tax changes.
This is a very broad expectation that applies to the whole of Australia. The Western Australian property market is one of the strongest-performing markets in the country. Demand for property remains high, and while the reforms may discourage investment in established homes, there is sufficient competition from owner-occupiers to sustain robust price growth.
Negative Gearing Changes May Backfire
Removing negative gearing for established homes is intended to reduce competition between first homebuyers and investors. In reality, it could have the opposite effect. Investors who do not wish to build new homes will instead target established properties in lower-priced suburbs or cheaper property types such as apartments and units, as their investments could potentially be neutrally or positively geared. These are precisely the suburbs and property types that appeal to first homebuyers seeking to enter the market.
Deliberately steering investors towards new builds will also put them in direct competition with first homebuyers, who often look to new builds as a way to break into the housing market.
Rentvestors Face Double Penalty
First homebuyers who adopt a rentvesting strategy to enter the market will be doubly penalised. Rentvesting involves purchasing an affordable property, renting it out, and renting where you want to live. Over time, you build equity through capital growth and mortgage repayments, then sell the property to buy your desired home. Under the new rules, rentvestors will no longer be able to claim a 50 per cent capital gain discount and will face a minimum 30 per cent tax rate.
Negative gearing often plays a role in rentvesting as well. Now, if rentvestors want to claim any losses against their income, they will be limited to buying new builds, which may not be the most suitable option for them.
Overall Impact on First Homebuyers
In summary, the tax changes will do little to improve conditions for first homebuyers. The full REIWA 2026-27 Federal Budget reply is available at reiwa.com.
