Last week's federal budget was called the budget designed for first home buyers, but will it unlock home ownership faster?
The 2026 Federal Budget unveiled the single largest change to the taxation system in place over the housing market since 1999.
Designed to unlock intergenerational equity and give first home buyers a better chance of getting in the market, changes to the capital gains tax (CGT) and negative gearing have been designed to help 75,000 homeowners enter the housing market for the first time over the next decade.
By introducing a minimum tax rate of 30% to real capital gains accruing from 1 July 2027, the new minimum tax rate reduces the benefit of taxpayers deferring capital gains realisation to years where their marginal tax rates are low.
The budget also laid out a new plan to restrict the CGT discount to investors who buy new homes. They can choose either the 50% CGT discount or indexation and the minimum tax when selling a property. Knock-down rebuilders or substantial renovations that do not actually increase supply will not be eligible.
Treasurer Jim Chalmers describes it as decisive action to boost housing supply and make the tax system fairer to help more Australians into home ownership.
Treasurer Jim Chalmers said his budget is 'ambitious'. Picture: Lyndon Mechielsen
“We’re levelling the playing field for first home buyers and making the tax system fairer by helping more Australians buy their own home," he said.
Falling short
However, some housing experts argue that the measures have not gone far enough given that first home buyers are staring down the barrel of average housing prices of $1 million just to get their foot in the door of a lender.
Describing the changes to housing and investment taxation as some of the most significant seen in the REA Group senior economist Anne Flaherty remains unconvinced that the changes announced will deliver the intended outcomes.
In contrast to the government’s stated desire to improve intergenerational fairness, these reforms are likely to achieve the reverse, particularly over the longer term.
REA Group economist Anne Flaherty is unsure the changes will have the desired affect for first home buyers. Picture: Supplied
“While they may seem more favourable to first home buyers on the surface, in practice, and over the longer term, they may also hurt first home buyers," Ms Flaherty explains.
“This is because grandfathering of negative hearing will apply to current owners of investment properties. In other words, the tax benefits that have been continually available to older property investors since 1987 will no longer be available to younger investors.”
Flaherty adds that more than half of all property investors are aged above 50, meaning a significant proportion are retired or are close to retirement, reducing the benefits of negative gearing compared to a younger worker with decades left in the workforce.
Currently, due to the high cost of construction, new apartment housing is also prohibitively expensive. Nationally, 56% of new apartment developments are priced above $1.5 million. In Queensland, 73% of new apartment developments are priced above $1.5 million.
High prices for new build apartments can be a stretch. Picture: Jesse Thompson/Getty Images
“In contrast, around three quarters of new house and land developments are priced below $1 million," Ms Flaherty says. "Given houses traditionally see more capital growth over the longer term, and given the lower entry price point, this is likely to drive more investors to buy house and land packages, a product type typically popular with first home buyers.
“In other words, first home buyers looking to purchase a house and land package in a more affordable region are going to be competing with more investors for these homes in the future.”
By reducing investor demand, over time, the share of rental properties supplied will also fall, which will push rents higher and increase the time taken for renters to save for a deposit, she adds.
Taxing issue
The tax changes outlined in the budget signal a significant shift in the government’s thinking around first home buyers, H&R Block director of tax communications Mark Chapman says.
“The clear direction of these reforms is to push future investor activity more heavily toward new housing supply rather than existing homes," he states. "That matters because first home buyers are often competing directly with investors for the same established properties, particularly in capital cities."
For first home buyers, the changes may gradually improve competitive conditions over time, particularly in the established housing segment. However, affordability pressures remain very real and structural, Mr Chapman says.
“Deposit hurdles, borrowing capacity constraints, interest rates and broader cost-of-living pressure are still the dominant barriers for many first home buyers, so tax reform alone is unlikely to suddenly make housing feel affordably overnight."
Drilling down
The figures provided in the budget gloss over some important details, Kusher Consulting director Cameron Kusher adds.
Over the past decade, around 115,014 first home buyers have entered the market each year, so the increase announced in the Budget is really 7,500 more first home buyers a year, or 6.5% more first home buyers each year.
“With investment in real estate becoming less attractive and negative hearing no longer available on established properties, it’s likely that first home buyers will face reduced competition to purchase from investors,” Mr Kusher explains.
“This budget is very much being pitched at helping younger Australians and in particular helping first home buyers enter the housing market, whether that happens remains to be seen."
Trade gridlock
PRD Real Estate chief economist Dr Diaswati Mardiasmo points out Australia likely does not have enough workers in the construction, trades and engineering workforce to build the houses the budget is depending on.
This throws up questions around where the extra homes will be built.
“Properties can only be negatively geared if it’s a new build – that’s the key,” Dr Diaswati says.
She points out that new builds can be expensive, and first home buyer budgets sometimes don’t stretch to this. For Dr Mardiasmo, it will be a case of waiting to see how the policy translates in the market.
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