When the debate over the impact of removing negative gearing and the capital gains tax discount on investment properties kicked off after budget night in May, a narrative emerged that this would reduce the number of homes built by property investors.
The federal Treasury estimated that the changes to the capital gains tax discount and negative gearing would reduce the number of homes being built by 35,000 over the next decade.
This echoed the conclusion of modelling from Qaive and Tulipwood Economics that limiting negative gearing to new homes would reduce the number of new homes being built by 22,700 over the next 5 years.
Westpac took the opposite view in its forecasts, saying the number of new homes built by property investors would rise by about 45%.
“While there are other important considerations for buyers considering new vs existing – including cost, delivery risk and capital gain expectations – it is likely that at least some prospective investors will switch.
The implication is that sharply lower investor activity will also skew more heavily towards new, the share potentially rising towards 40–50% of new investor loans”, Westpac wrote.
Last week, the ABS released the latest housing finance data, which held the first seven weeks of hard country-wide figures on the impact of the budget on the flow of new mortgages to property investors.
While this is naturally a very limited data set and it is very much early days in assessing the changes to the tax treatment of property investors, the preliminary figures suggest a more positive outcome.
Loans to investors for the construction of new homes hit a quarterly record high for the current ABS data set, which stretches back to September 2019, with 8,468 loans approved for the June quarter. On a rolling 12-month basis the flow of new construction loans for investors also set a record high of 31,837.
Flows of mortgages to investors for already completed new homes are also performing relatively robustly, hitting the highest quarterly level since September 2025 and the highest rolling 12-month figure since the June quarter of 2022.
The Takeaway
While it is naturally early days, the preliminary data on property-investor-driven new construction is so far quite promising.
I suspect Westpac has a better understanding of the underlying psychology of property investors and how negative gearing is a primary element of the appeal for a sizeable proportion of investors.
Whether that is definitively the case or not remains to be seen, but if they are correct, it would prove to be a truly prophetic call and one that ultimately deeply benefits the nation if it comes to pass.
