A week on from the Federal Budget, the headlines have started settling and the real conversations are beginning.
Before Budget night, there was a lot of speculation around negative gearing, capital gains tax, housing affordability and investor lending.
Now we know what was actually announced.
But the bigger question is this:
Will these changes genuinely improve housing affordability, or simply make property investing and borrowing more complicated?
Our view is somewhere in the middle.
Some of the proposed changes make sense.
Some could create unintended consequences.
And some are already affecting lending policy faster than most borrowers realise.
What has actually been announced?
The Federal Government has announced a range of proposed changes affecting property investors, borrowers and small business owners.
The key proposed measures include:
- limiting negative gearing on residential property to new builds from 1 July 2027
- grandfathering existing investment properties held before Budget night
- restricting rental losses on established residential investment properties purchased after Budget night so they can generally only be offset against residential property income and gains
- allowing unused rental losses to be carried forward
- replacing the current 50% capital gains tax discount with a cost-base indexation model from 1 July 2027
- introducing a permanent $20,000 instant asset write-off for eligible small businesses from 1 July 2026
- introducing a minimum 30% tax rate on discretionary trust distributions from 1 July 2028, subject to exemptions and transitional arrangements
You can read the Government’s Budget announcements here:
It is important to note these are announced measures and some changes will still require legislation and implementation detail before taking full effect.
Our take on the negative gearing changes
The Government’s objective is fairly clear.
It wants to redirect investor demand away from established housing and toward new housing supply.
On paper, that makes sense.
Australia needs more homes. Encouraging investment into new housing construction rather than existing dwellings is not an unreasonable policy objective.
But there is a major problem with the theory.
Australia does not just have a tax incentive problem.
It has a housing supply problem.
And those are not the same thing.
If the Government reduces incentives for established property investment without materially increasing the speed and volume of new housing delivery, there is a real risk the policy simply reshuffles demand rather than meaningfully improving affordability.
That matters because fewer investors entering the market can reduce future rental supply, particularly in areas already experiencing vacancy shortages.
The part most people are missing
A lot of the online commentary has made it sound like negative gearing is being abolished entirely.
That is not what was announced.
Existing investment properties held before Budget night are expected to remain grandfathered under the current rules.
That is significant.
It reduces the likelihood of forced investor sell-offs and avoids a major shock to the housing market.
But it may also create a two-speed market.
If existing investors are incentivised to hold rather than sell, supply of established investment stock may tighten even further.
At the same time, investors chasing tax-effective outcomes may increasingly compete for new builds instead.
That could place additional upward pressure on new housing prices if supply cannot keep up.
This is why we think the “investors lose, first home buyers win” narrative is too simplistic.
The reality is far more complicated than that.
Lenders are already reacting
This is where the story becomes very relevant for borrowers.
Even though many of the proposed tax changes are not expected to commence until 2027, some lenders are already responding.
Macquarie has reportedly updated its approach to negative gearing treatment in serviceability for certain investor lending scenarios.
You can read more here:
That is important because it shows lenders are not necessarily waiting for legislation to pass before reviewing risk settings and servicing assumptions.
For borrowers, this means an old borrowing capacity estimate may no longer reflect current lender policy.
From our perspective, this Budget is no longer just a tax discussion.
It is now a lending strategy discussion as well.
Will these changes actually improve affordability?
Possibly, but probably not quickly.
The assumption behind the policy is that reducing investor demand for established property will improve opportunities for first home buyers.
There may be some truth to that.
But affordability is driven by far more than investor demand alone.
Interest rates, borrowing capacity, wages, construction costs, infrastructure, land supply and approval delays all play a major role.
The risk is that if investor demand falls faster than new housing supply increases, rental pressure could worsen before affordability meaningfully improves.
That is the balancing act the Government is now trying to manage.
The construction bottleneck remains the biggest issue
This is the uncomfortable reality.
You can incentivise new housing investment all you want, but homes still need to be approved, funded and built.
And right now, the construction sector remains under pressure.
The National Housing Supply and Affordability Council has highlighted ongoing labour shortages, elevated construction costs and supply constraints across the housing sector.
You can read the report here:
The Housing Industry Association has also warned about planning delays, workforce shortages and approval bottlenecks affecting housing delivery.
This is why we keep coming back to the same point:
Tax policy alone will not solve a housing shortage.
Small business owners should pay attention too
The permanent extension of the $20,000 instant asset write-off will likely be welcomed by many small business owners.
Further details can be found here:
From a lending perspective though, there is another side to this discussion.
Tax deductions can affect taxable income, and taxable income remains a major factor in how many lenders assess self-employed borrowers.
That does not mean business owners should or should not claim deductions.
That is a conversation for their accountant or tax adviser.
What it does mean is self-employed borrowers should think about tax planning and lending strategy together, especially if they are planning to apply for finance in the near future.
Our blunt take
We understand what the Government is trying to achieve.
Redirecting investment toward new housing supply rather than existing housing stock is not an unreasonable objective.
But tax policy cannot fix structural housing supply issues on its own.
Without faster approvals, improved infrastructure, more skilled labour and greater construction capacity, there is a real risk these changes simply make investing more complex without materially improving affordability.
From a lending perspective, uncertainty is now one of the biggest issues.
Borrowers, investors and lenders are all still working through what these changes may mean in practice.
And uncertainty alone can slow borrowing, investment and confidence.
What borrowers should do now
For investors, now is the time to reassess borrowing capacity and future strategy under current lender policy rather than relying on old assumptions.
For first home buyers, affordability fundamentals still matter far more than headlines.
And for self-employed borrowers, tax planning decisions should be considered alongside future lending goals.
The Budget has changed the conversation.
The next step is understanding how those changes may affect your own borrowing position and future plans.
We Can Help You Make the Right Move
Budget announcements can create uncertainty, especially when housing, lending and property investment are involved.
Whether you are buying your first home, reviewing your current lending or planning your next investment purchase, understanding how these changes may affect your borrowing position is important.
We can help you assess your options and build a strategy that suits your goals and circumstances.
Book a strategy session:
Book an Appointment with Shoreline Lending
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You can also contact us directly at:
hello@shorelinelending.com.au
(02) 4319 8173
Disclaimer
The information in this article is general in nature only and does not constitute tax, legal, financial or investment advice. Tax treatment depends on individual circumstances and may change as legislation, ATO guidance and lender policy develop. Borrowers and investors should seek advice from their accountant, tax adviser, solicitor, financial adviser or mortgage broker before making financial or investment decisions. Lending information is general only and subject to lender policy, eligibility, credit assessment and individual circumstances.