The recent publication of the ABS Lending Indicators data to March 2026 showed Australia’s housing finance market continued to expand through the March quarter 2026, although the pace of growth is beginning to moderate as higher interest rates again began to weigh on borrowing capacity. At 123,400 for the quarter, total new loan commitments were 7.8% higher than a year earlier, with investor lending continuing to drive activity.
The March 2026 quarter data reflects a market balancing two competing forces. On one side, strong population growth, tight rental markets and persistent dwelling undersupply continue to support housing demand. On the other, the rate rises in February and March 2026, together with an upward bias from the RBA, seems to be tempering momentum among owner occupiers, with the potential for investors to follow given the additional rate rise in May.
Investor Activity Continues to Set the Pace
Investors have become the dominant force in the market. Investor loan commitments rose 18.5% nationally over the year to March 2026, well ahead of both First Home Buyers and Next Time Buyers. Investors now account for 41% of all new housing loans, surpassing the presence of ‘next time’ buyers, who had previously been the dominant force over the past decade. Tight rental markets, improving yields and expectations that housing undersupply will persist over the medium term and provide a positive environment for investors. However, investor price thresholds will be reduced in a higher interest rate (and potentially higher taxing) environment.
Owner occupier Activity has Tapered
By comparison, owner-occupier activity is losing some momentum. First Home Buyer lending was up a modest 4.0% nationally over the year, while Next Time Buyer activity was effectively flat, down 0.4%.
The positive outcome from First Home Buyers is likely to reflect the support from the Federal Government’s Home Guarantee Scheme introduced in October 2025, although this is likely to wane as higher interest rates reduce the buying capacity of the next round of purchasers. This is highlighted by the slowing Next Time Buyer activity, which emphasises the impact affordability pressures are having on upgrade decisions despite continued labour market resilience.
State and Territory Trends
State trends continue to diverge. New South Wales and Victoria recorded the strongest overall lending growth among the larger states, supported by a renewed lift in investor activity. Investor loans rose 16.3% in NSW and almost 29.3% in Victoria over the year, with Victoria in particular continuing to benefit from investors seeking relative value after several years of softer price performance. Total lending rose 10.7% in NSW and 11.5% in Victoria, with a strong rise also recorded in the Australian Capital Territory (+14.2%).
Queensland, South Australia and Western Australia continue to see demand moderate following several years of exceptionally strong growth. In Queensland and Western Australia, Next Time Buyer activity declined over the year, suggesting affordability pressures are increasingly constraining established owner occupiers. Tasmania recorded solid growth (particularly from investors), while lending volumes in the Northern Territory softened.
Potential Impact of Proposed Negative Gearing and Capital Gains Tax (CGT) changes on Residential Property Markets
Changes to negative gearing (restriction of negative gearing on established residential property) and to CGT (removal of the 50% discount and replacement with indexation) announced in the May Federal Budget are likely to reshape investor behaviour rather than remove investors from the housing market altogether.
Things to consider from the perspective of an investor include:
Negative gearing is restricted for existing residential property but there is the ability to carry forward negative gearing losses to deduct against future income (and future CGT gains). The tax benefits remain but are pushed out into the future when the property would otherwise be positively geared. The net financial result over time is zero, although investors are likely to place a premium on reducing tax now.
New dwellings can still be negatively geared. A rational investor would be expected to be less attracted to new dwellings as they are instantly devalued because the subsequent buyer will not pay as much due to the lack of negative gearing benefit. However, Australians love property and they love a tax refund, and there could still be significant demand from investors looking to decrease their tax liability despite the more limited prospect for capital gains.
Negative gearing is still applicable to non-residential investments. Prospective residential investors may look to alternative property investments that can still be negatively geared, such as commercial, retail or industrial property, or other investments such as shares, infrastructure funds, private credit and superannuation. Residential property may still appeal where rental yields are strong and long-term supply constraints are clear, but it would need to better stand up on its own economics rather than tax treatment.
Indexation of capital gains replacing the 50% capital gain discount. Indexation may benefit long-hold investors by recognising inflation, while the minimum 30% capital gains tax reduces the ability of high-income investors to shelter large gains. This lowers the speculative appeal of property, particularly for investors relying on tax-driven leverage and capital growth rather than rental yield. However, if we are now entering a period of structurally higher inflation and lower real house price growth, indexation may actually now be more tax advantageous than the 50% discount.
Grandfathering of previous tax settings. The grandfathering provision means that there will be investors willing to hold on to their ‘tax protected’ investments for longer. This will somewhat reduce supply to the market and mitigate some of the impact of lower investor demand.
Playing out some of the implications, we are likely to see the following:
Prices lower than they otherwise would have been. Investors will seek a higher yield to compensate for the lack of negative gearing benefit and therefore be less willing to bid up prices to compete in the market.
A likely reduction in new dwelling activity. While negative gearing benefits remain for purchasers of new property, resale values will be affected as subsequent buyers will not have the benefit of negative gearing. The price premium for a new dwelling therefore becomes less attractive. Future investors in new dwellings will wait until established prices catch up and improve the value proposition, delaying the progress of new projects.
Higher rents than they otherwise would have been. Tenant demand will continue to increase overall through population growth. However, if new supply is delayed by a lack of investors, the dwelling shortfall will intensify and cause rents to rise further than they otherwise would have. Higher rents will also be required to entice new supply.
A similar outcome was outlined in the Budget, which also identified higher rents, lower prices and reduced new dwellings over a period. However, quantifying these outcomes is difficult as we are also trying to assess human behaviour and responses.
Nevertheless, they are broadly likely to slow speculative investor demand for established residential property without causing a major correction in dwelling prices in themselves (although the impact could be magnified in the current rising interest rate environment).
Grandfathering of negative gearing and CGT arrangements is likely to discourage turnover and may tighten rental supply over time. More investors could gravitate toward newly built housing but many are equally likely to be detracted by the prospect of devaluation at re-sale, thereby delaying new projects until established prices catch up. The most probable outcome is slower price growth in established investor markets, rising rents, lower transaction volumes and a gradual reshaping of investment toward alternative asset classes.
For further insight into housing market activity and what it means for your business, contact Angie Zigomanis at [email protected] or Rob Burgess at [email protected]
