This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.
Key takeaways
- ABS Construction Work Done, Australia, Preliminary, March 2026, released 27 May, lifted total construction 3.4% on the quarter to $83,360.6 million. Engineering did the heavy lifting at +6.9% QoQ. Residential building work went backwards by 0.6% on the quarter.
- Residential building work is still 5.6% higher over the year, but that is a deceleration from 8.7% year-on-year in Q4 2025. New dwelling work growth has slowed to about 5.0% year-on-year, down from 8.7% in the previous quarter.
- ABS Producer Price Indexes, Australia, March 2026 put house construction prices up 1.1% on the quarter, the third consecutive quarter at 1% or higher. Other residential building construction also rose 1.1%.
- ABS Private New Capital Expenditure and Expected Expenditure, March 2026, released 28 May, showed total capex up 6.5% on the quarter but buildings and structures down 3.8%, with non-mining buildings off 4.3%.
- The 12 May 2026 Budget exempted new builds from the negative gearing and CGT changes that take effect on 1 July 2027. New builds are now the only post-Budget purchase path that preserves both immediate loss offset and the existing 50% CGT discount.
- CBA Senior Economist Trent Saunders has trimmed CBA's dwelling price forecast for 2026 to 3% growth, down from 5%, with 2027 unchanged at 3%. CBA expects prices to land about 3% lower than they otherwise would have on the back of the tax changes.
- The National Housing Supply and Affordability Council forecasts 938,000 dwellings over the 5-year Accord period, against a target of 1.2 million. The first 12 months delivered 174,732 against a required 240,000.
- For investors, the path Treasury is herding them onto is real, but it is also a tighter, more expensive, slower channel than the headlines suggested.
This article is general information only and does not constitute financial, tax, or investment advice.
The 12 May 2026 Budget closed negative gearing on new established residential purchases from 1 July 2027 and rewrote the CGT regime for any residential disposal from the same date. New builds were left as the exemption. The political messaging on Budget night was that the carve-out preserved a path for investor capital while pushing it where it would add supply.
Three weeks in, the supply side of that bet is not behaving the way the Budget assumed.
On 27 May, the ABS released preliminary Construction Work Done for the March quarter 2026. Total construction value rose 3.4% on the quarter, in seasonally adjusted terms, to $83,360.6 million. Engineering construction did the heavy lifting at +6.9% on the quarter, which is mining and infrastructure, not housing. Inside the building component, the picture flips. Total building work rose only 0.6%. Non-residential building rose 2.5%. Residential building work fell 0.6% on the quarter.
Year-on-year, residential building work is still 5.6% higher than the March quarter 2025. But that is a step down from the 8.7% year-on-year growth print recorded in Q4 2025. The deceleration is on a curve, not a one-quarter wobble.
What the residential pull-back actually means
A 0.6% quarterly fall in residential building work is small in isolation. The signal is in the combination of that fall with three other prints from the same window.
First, the ABS Producer Price Indexes for the March quarter 2026 showed house construction output prices up 1.1% on the quarter. Other residential building construction also rose 1.1%. House construction has now run at 1% or higher quarterly growth for three quarters in a row, with input materials and labour both contributing. That is not a cost picture that helps a builder say yes to a marginal project.
Second, the ABS Private New Capital Expenditure release on 28 May put total capex up 6.5% on the quarter, but the headline was data centre equipment and information media and telecommunications, up 96.1%. Buildings and structures fell 3.8% on the quarter, with non-mining buildings down 4.3% and mining buildings down 2.9%. Private business investment in the physical structure of the country went backwards while spending on servers raced ahead.
Third, ABS Lending Indicators for the March quarter 2026 put the number of new loan commitments for dwellings down 6.2% on the quarter and the value down 3.8%, with new investor loan commitments down 5.3% in number and 3.0% in value.
Set those four readings side by side. Residential construction output volume fell. Residential construction input costs rose. Private investment in buildings fell. New housing finance fell. There is nothing in the data pack from the last three weeks pointing to an upswing in the new-build pipeline. There is most of an argument that the pipeline is grinding lower.
Why this hits the Budget's logic
The Budget's negative gearing change is structured as a redirection, not an outright removal. From 1 July 2027, residential investors can only deduct net rental losses against other income if the property is a new build that adds to supply. Losses on post-Budget established purchases are quarantined and carried forward. On disposal, new builds can elect between the existing 50% CGT discount and the new cost-base-indexation-plus-30% regime. Established stock disposed of from 1 July 2027 goes on the new regime regardless of when it was bought.
The implicit theory is straightforward. Choke the tax incentive on established stock, and investor capital flows into new builds. New builds, by definition, add to supply. Supply puts a lid on rent and price growth. Treasury wins on the housing affordability side without losing the supply benefit of private investor capital.
The theory only works if the new-build channel can actually absorb the redirected capital. Q1 2026 says the channel is narrowing, not widening, at the exact moment the Budget needs it to widen.
The Housing Industry Association made this argument before the Budget and has restated it since. HIA's position is that constraining negative gearing to new builds does not, by itself, deliver more new builds. The binding constraints on new supply are planning timelines, labour availability, build cost, and infrastructure-enabled land, not investor finance. Redirecting demand into a constrained channel pushes new-build prices higher and yields lower, which is the opposite of the Budget's stated supply intent.
CBA's own post-Budget housing update, led by Senior Economist Trent Saunders, took the dwelling price forecast for 2026 down to 3% growth from 5%, with 2027 left at 3%. CBA's view is that the changes will leave prices about 3% lower than they otherwise would have been, with a smaller drag on rents. The price drag is concentrated in segments where investor participation is highest, which CBA names as apartments, townhouses and lower-priced established dwellings.
The supply target is already off track
The new-build narrative also has to be checked against the National Housing Accord numbers. The Accord target is 1.2 million well-located dwellings over the five years from 1 July 2024 to 30 June 2029, or 240,000 a year, or 60,000 a quarter.
According to the National Housing Supply and Affordability Council's State of the Housing System 2026 report, 174,732 dwellings were completed in the first 12 months of the Accord period. That is a shortfall of 65,268 against the 240,000-a-year run-rate. The Council's forecast for total Accord-period completions is 938,000, leaving a projected shortfall of about 262,000 dwellings against the 1.2 million target.
To catch up from the first-year hole, Australia would need to complete roughly 256,317 dwellings a year for the remaining four years. Q1 2026's 0.6% quarterly fall in residential building work, combined with new home loan numbers that fell 1.7% on the quarter for owner-occupiers and were essentially flat for investors at minus 0.3%, does not suggest the catch-up is in train.
What a new-build investment now has to clear
For an investor weighing the new-build exemption as their path forward, the numbers from the last three weeks reset the underwriting.
Build costs sit in the $1,800 to $3,500 per square metre band for project and custom homes, with Sydney metro at $2,800 to $4,200, Melbourne project homes around $2,500 to $3,000, and Perth at $2,300 to $4,750. National average build cost is now about $443,000 excluding land, and the building of a new home costs roughly 47% more than it did before the pandemic. Those baseline numbers are rising 1.1% a quarter on the PPI measure.
A new-build investment also has to clear the holding period during construction. There is no rent coming in for the 12 to 18 months a typical project home takes, but loan interest is accruing from drawdown. That carry has to be funded out of cash flow elsewhere. With CBA expecting dwelling prices to land about 3% lower than they would have without the tax changes, the equity buffer at completion has been trimmed at the same time the holding cost is climbing.
The exemption is real. It is also a specific, finite, more expensive channel than the headlines made it look.
What this means for existing portfolios
For investors who already hold established stock as at 7:30pm AEST on 12 May 2026, the read is more straightforward. The grandfathering preserves both negative gearing on existing properties and the existing rules around them. The relative after-tax case for continuing to hold those assets has improved compared with churning into post-Budget established stock, which sits on the worse side of every rule from 1 July 2027.
That is not advice to hold forever. But it does shift the bias. Selling a grandfathered established rental into the post-1-July-2027 CGT regime crystallises a tax outcome under the new rules. Holding it preserves the old regime for the life of the asset. The decision tree on a planned sale in 2027 or 2028 has been rewritten by the Budget, and most landlords have not yet sat down with their accountant to work through it.
The other read is that the grandfathering documentation matters more than usual. The contract of sale, settlement statement and finance approval that prove a property was held or contracted before the cut-off need to be retained indefinitely, not just for the standard five-year ATO retention. The grandfathering claim sits on those documents, and there is no easy substitute if they are lost.
What we are watching next
A few prints between now and the end of June will sharpen this picture.
- Building Activity, Australia, December 2025 revision on 8 July 2026, which will restate the dwelling commencements and completions data used to track the Housing Accord.
- The Cotality national HVI for May 2026 on 2 June 2026, which gives the first read on dwelling prices since the Budget landed.
- The next SQM Research vacancy bulletin in mid-June, which tells us whether the April 1.2% turn extended or reversed.
- Mid-cycle build cost commentary from the major project builders, particularly any signs that pre-Budget contracts are being renegotiated or pulled.
If residential building work prints down again in Q2 and dwelling prices grind sideways while new-build costs keep rising, the Budget's supply theory needs more than a tax change to land.
Tools that help with this
If you are weighing a post-Budget purchase, Propkt's mortgage repayment calculator lets you model the carry on a build during the no-rent construction window against your existing cash flow. The expense tracking and rent management tools handle the gross-rent, deducted-expense reporting the ATO is now matching directly against property management software feeds. And if you are revisiting whether your existing portfolio is set up correctly for a 1 July 2027 regime, the property records and document storage feature gives you a place to keep the contract of sale and settlement statement that prove grandfathered status.
The Budget changed the question every landlord has to answer. Q1 2026 data made the new question harder. Get the numbers in front of you before the next decision.