The Government Isn’t Just Changing Tax Policy. It’s Trying To Change Investor Behaviour.
For years, the Australian property market has largely rewarded investors for buying established homes in strong locations, holding them long term, claiming negative gearing benefits, and relying on capital growth over time.
The 2026 Budget signals a major departure from that model.
The government’s objective appears clear, reduce investor competition for existing housing stock while encouraging investors to help fund the creation of new housing instead.
Why?
Because Australia still has a serious supply problem.
Population growth remains strong. Migration remains elevated. Vacancy rates across many parts of the country remain incredibly tight. And despite years of affordability discussions, the reality is Australia still hasn’t built enough housing in the areas people actually want to live and work.
So rather than discouraging property investment altogether, the government appears to be trying to redirect it.
That’s a very different thing.
According to figures discussed following the Budget, roughly 83% of investment properties purchased in 2025 were existing properties, while only 17% involved newly created housing stock.
That imbalance is exactly what the government now appears determined to change.
Why Some Existing Investment Properties Could Suddenly Become Less Attractive
This is where things become important for current investors.
For decades, many investment properties remained viable because investors were comfortable accepting lower rental yields in exchange for:
- strong long-term capital growth,
- favourable tax treatment,
- and the ability to offset holding costs through negative gearing.
But if parts of that equation begin changing, investor behaviour changes with it.
And that could significantly reshape demand for certain types of property.
The properties likely to feel the most pressure are those that already relied heavily on tax advantages to justify weaker cash flow, particularly:
- older apartments,
- investor-heavy CBD stock,
- low-yield metropolitan properties,
- and properties where rental returns already struggle to cover holding costs.
That doesn’t necessarily mean these properties suddenly become “bad” overnight.
But it does mean investors may start comparing them very differently against newer alternatives offering:
- stronger depreciation benefits,
- potentially more favourable tax outcomes,
- and higher rental yields.
An investor holding a low-yield inner-city apartment may suddenly reassess that property very differently to someone holding a high-yield duplex or newer property in a growth corridor.
That shift in thinking matters.
Importantly though, this does not necessarily mean Australian property prices collapse from here.
Australia still has:
- undersupply,
- strong migration,
- constrained land in desirable locations,
- and deep long-term housing demand.
Scarcity still matters.
A tightly held property within five kilometres of a major CBD may still perform extremely well long term simply because supply can’t easily be replicated.
But what could change significantly is the gap between what investors consider a strong investment property and a weak one.
The Biggest Winners Could Be New Builds, Growth Corridors And Build-To-Rent Projects
If there’s one thing the Budget signals clearly, it’s this:
The government wants investor money flowing into the creation of new housing supply.
That means:
- new apartments,
- new townhouses,
- house-and-land packages,
- and large-scale build-to-rent developments
could become some of the biggest beneficiaries of this new environment.
And from an investment perspective, it’s not difficult to see why.
New properties may continue offering:
- stronger depreciation schedules,
- ongoing negative gearing benefits,
- more favourable capital gains treatment,
- and potentially even additional incentives in future years if governments continue trying to stimulate housing supply.
But there’s another layer here that many investors missed entirely.
One of the more subtle but potentially enormous shifts in the Budget was the increased flexibility around how large superannuation funds can invest in residential housing projects.
Historically, many institutional super funds focused heavily on blue-chip commercial assets with strong yields.
But if those funds are increasingly allowed to accept lower yields in exchange for long-term residential exposure, Australia could see a significant rise in:
- institutionally owned apartment projects,
- large-scale build-to-rent developments,
- and super-funded residential communities.
That’s a major structural shift.
And if billions of dollars of institutional capital begin flowing into Australian residential housing supply, the ripple effects across the property market could be substantial over the next decade.
The Lending Industry Hasn’t Caught Up Yet. And That Matters.
This is the part that probably isn’t getting enough attention yet.
The Budget may have announced proposed changes, but lenders themselves are still working out how they’ll interpret them operationally.
And right now, there are still major unanswered questions around:
- existing pre-approvals,
- servicing calculations,
- policy interpretation,
- borrowing capacity assessments,
- investor lending rules,
- and transitional arrangements.
In many cases, banks simply haven’t fully clarified their positions yet.
For investors currently sitting on pre-approvals, particularly investor pre-approvals, this creates a genuine grey area.
You may have been assessed under one policy environment, but if you haven’t yet purchased a property, what happens next?
Does the approval still stand?
Will lenders reassess?
Will some banks move faster than others?
Will certain lenders become more restrictive than competitors?
At the time of writing, much of that is still evolving.
That’s why investors assuming “everything will just continue as normal” could be making a mistake.
Over the coming months, we expect lenders to progressively clarify their positions, update policy settings, and adjust how they assess investor applications under this changing landscape.
Until that settles, investors need to stay proactive.
If you currently hold a pre-approval, particularly for investment lending, it’s probably worth revisiting your position before making assumptions about what your borrowing capacity or purchasing options now look like.
This Feels Like The Beginning Of A Major Shift
Whether these policies ultimately improve housing affordability remains to be seen.
But one thing already feels clear.
The rules around Australian property investing are changing.
And the investors who adapt early, understand the direction of the market, and structure themselves properly will likely place themselves in a much stronger position over the next decade.
Because the government isn’t just changing tax policy.
It’s trying to reshape where investor money flows across the entire property market.
And that’s a shift investors simply can’t afford to ignore.
If you want to understand how these changes could impact your own borrowing power, investment strategy or portfolio, book a free 30-minute finance strategy session with the Trilogy team. We’ll walk you through the numbers, explain what lenders are currently doing, and help you understand what opportunities may still exist in this changing market.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).