Budget 2026: What the government’s housing tax changes mean for first home buyers and housing affordability

I have been writing about budgets for 12 years, and for almost all of that time, governments have claimed that they want to do something about housing affordability. But each policy put up has been rubbish.

The best you could say is that some of them would have no effect on housing affordability. These are the best because many of these policies have actually made housing affordability worse.

The evidence shows this. Over the last 25 years, house prices have boomed. Young people have watched as prices have raced ahead of them, putting home ownership further and further out of reach.

But for the first time, there is a policy on housing affordability that isn’t crap.

An actual policy that will make a real, positive difference.

What is that policy? Changes to both the capital gains tax (CGT) discount and negative gearing.

The 50% CGT discount will revert to the pre-1999 system where it linked to the inflation rate.

Negative gearing will be restricted to new builds, meaning it will no longer apply to investment purchases of existing properties.

Together, these changes will reduce the enormous tax concessions that are encouraging people to speculate on the property market. Pushing up house prices and turning the housing market into a casino.

Scrapping these two tax loopholes will tilt the field in favour of first home buyers and owner-occupiers and away from investors.

This will mean more of the properties that come up for sale will be sold to owner-occupiers and first home buyers. More people will live in a home of their own.

The Australia Institute has been pushing for changes since the CGT discount was first introduced in 1999. We have been saying the discount distorts the tax system and is locking people out of housing while saddling those that do get in with huge mortgages.

We have pointed out that house prices took off after the discount was introduced, rising twice as fast as incomes.

The government has listened.

They have been out-selling these changes using our evidence. They are saying the discount is a distortion that has pushed house prices to grow much faster than incomes.

The Treasurer in his budget speech said, “Since 1999, house prices have risen 400 percent, more than twice as fast as average incomes.”

Sound familiar?

Some have claimed that the CGT discount and negative gearing are helping increase housing supply by increasing demand for new houses. The government are clearly concerned about this argument; this is why they have restricted these concessions to only those buying new homes.

There will also be grandfather arrangements. Grandfathering is where people who have previously bought investment properties will be shielded from some of the changes.

If you bought an investment property before tonight, then you will continue to be able to take advantage of negative gearing. The changes to the discount will not start until next year, but all capital gains after July 2027 will be treated under the new system, while all capital gains before that date will still get the 50% discount.

Housing affordability is the biggest issue facing Australians. It has distorted so many aspects of our lives. Housing affordability is only one, but admittedly by far the largest one.

It has also meant that people spend much longer, using much more of their incomes, paying off huge mortgages. It has also seen more money flow into existing housing, leaving less money for other things like business investment.

For the first time in a long time, there is light at the end of the tunnel for those losing hope that they will ever be able to afford to live in a home of their own.