Investors Are Pulling Back. Few Are Switching to New.

The housing tax changes in the May budget had a clear intent. Make established homes less attractive to investors, keep the incentives for new builds, and nudge investor money towards new supply. Five months on, the first lending data is in. The first half of that plan is clearly working. The second half is much harder to see, and I think the gap between the two matters for anyone who builds, sells or funds new housing.

What changed

From July 2027, negative gearing will be restricted on established investment homes bought after the May budget announcement. Newly built properties keep the existing treatment and the option of the 50 per cent capital gains tax discount. Homes bought before the budget are grandfathered.

On paper, that tilts the field towards new stock. In practice, investors have to want to buy it.

What the lending data shows

Loan Market Group's October market report, covering broker lodgements to the end of September, is the most timely read. Excluding refinancing and seasonally adjusted, the value of new mortgage lodgements is 24 per cent lower than at the end of January, just before the RBA began raising rates. Investors are down 45 per cent over that period. Investor lodgements for existing properties are down 56 per cent. For new properties, which keep the tax treatment, they are down 10 per cent. Queensland lodgements overall are down 30 per cent, among the steepest falls of any state.

So new is holding up far better than established. But it is still down, not up.

The official ABS data for the June quarter tells a similar story. Investors took out 8,468 loans to build new dwellings, the highest in a series that starts in 2019. At the same time, investor loans for established homes fell 14.8 per cent to 40,647, and total investor commitments fell 8.6 per cent. Ray White's chief economist Nerida Conisbee worked out that for every additional investor loan written for a new home, roughly 16 fewer were written for established property. Her summary was blunt: "Redirecting investors towards new homes is not the same as getting more homes built."

Why the switch is slow

Tax is one input. It is rarely the deciding one. In the Property Investment Professionals of Australia annual survey, only 4.8 per cent of respondents said the preserved tax benefits made them more willing to buy new housing. More than half, 50.7 per cent, still preferred established property, and 17.3 per cent said concerns about builders, settlement delays and development locations had made them less willing to buy new.

Those concerns are not abstract. The National Housing Supply and Affordability Council puts house construction costs 51 per cent above pre-pandemic levels, and expects the 1.2 million home target to be reached in late 2030, beyond its June 2029 deadline. Higher costs end up in the price of new stock, which makes yields harder to justify.

Then there is valuation risk at settlement. One broker quoted by realestate.com.au gave a simple example: a $750,000 off the plan home valued at $700,000 on completion could leave a buyer relying on an 80 per cent loan needing an extra $40,000 to settle. In a market where values have been falling, that risk is front of mind.

Rates sit over all of this. The cash rate is 4.60 per cent after the September increase, and a single quarter of data cannot separate the tax effect from the rate effect.

Why it matters for new supply

This is the part I watch most closely. Many apartment and townhouse projects depend on investor presales to secure construction finance. If investors are not buying off the plan in volume, presale targets take longer to reach, and projects that pencil out on paper can sit waiting.

There are early signs in the approvals data. ABS figures reported by Australian Broker show total dwelling approvals fell 6.1 per cent in August, with approvals for apartments and townhouses down 21.2 per cent, while detached houses rose 3.7 per cent. Monthly approvals are volatile, so I would not read too much into one month. The ban on new residential borrowing through self managed super funds, which commenced on 10 August and has no carve out for new builds, removes another pool of buyers.

My own view is that the policy has changed where investors are not buying faster than it has changed where they are. Cost, finance, valuation and builder risk still decide whether a project gets built. A tax setting does not fix any of those on its own.

What I am watching

First, the ABS September quarter lending indicators, due in November. It will be the first full quarter after the budget, without pre budget weeks diluting it.

Second, whether the gap between established and new investor lending keeps widening, or whether new starts to grow in its own right.

Third, presale progress and approvals for medium and high density projects, where investor demand matters most.

None of this is a recommendation to buy, sell, borrow or invest. Everyone's position is different.

Sources

Australian Broker, Refinancing hits record 57% as investor lodgements slump (21 Oct 2026)

Loan Market Group, Market Report October 2026

Australian Broker, Investor shift to new homes driven by retreat from established market (19 Oct 2026)

realestate.com.au, Investors shun new homes despite negative gearing and CGT benefits (22 Oct 2026)

The Good Builder, Investor construction lending hit a series high last quarter (25 Aug 2026)

Money.com.au, Negative gearing changes 2026/27 (updated 14 Oct 2026)

Personal views, not financial advice.