New lending to Australian property investors has recorded its sharpest fall on record, as a budget overhaul of negative gearing and capital gains tax compounds five Reserve Bank of Australia (RBA) rate hikes already working through the housing market.
Australian Bureau of Statistics (ABS) data released November 11 showed overall new home loans fell 15.5% in the September quarter and are down 21.4% over the year. The decline is concentrated among investors: investor loans dropped 30.6% in the quarter and 38.5–38.6% over the year, driven mainly by a near-46% annual slide in loans for existing properties rather than new builds. First-home-buyer lending fell more moderately — 8.6% in the quarter, 12.3% over the year.
The state-by-state detail shows how uneven the hit has been. Investor loans for existing homes fell by close to 50% in New South Wales over the September quarter, 27% in Victoria, 40% in Queensland and 38.1% in Western Australia, while investor loans for new builds in NSW fell a smaller 18.4%.
Two policy changes, both flagged in the May 2026 federal budget, are doing the work. From July 1, 2027, negative gearing — the ability to offset rental-property losses against total income — will be limited to new-build properties. The same date brings back an inflation-indexed basis for the 50% capital gains tax discount, a concession in place since the Howard government that critics have long blamed for amplifying price growth and investor activity.
Treasurer Jim Chalmers’ office and Housing Minister Clare O’Neil both frame the shift as intentional: O’Neil told the Sydney Morning Herald the numbers show “the balance is shifting back towards Australians who are buying a home to live in.” Opposition housing spokesman Andrew Bragg called the changes a net loss for everyone — “not first home owners, not owners, not renters and not investors” — and urged repeal. JP Morgan economist Tom Ryan said the tax changes are “likely to remain a structural drag” on investor lending beyond the normal cycle of RBA tightening, while HIA senior economist Maurice Tapang pointed to a pickup in business construction, suggesting some builders are adding spec housing to keep subcontractors employed through the downturn.
The retreat of investors is also reshaping who is doing the lending. Major-bank lending fell 7.1% over the year while non-bank lenders — such as La Trobe Financial and Athena Home Loans, which offer fewer services than deposit-taking banks and are not bound by the same serviceability buffers — grew 67.7%, albeit from a low base. UNSW housing economist Christian Nygaard notes the shift echoes the investor-lending curbs of 2014–2016, when tighter credit rules reduced investors’ share of the market and moderated prices on investor-grade housing specifically.
For first-home buyers, the combination of falling prices and less investor competition is a mixed blessing: Nygaard’s modelling shows that for a buyer who delays a purchase, a theoretical 10% price fall plus six rate rises would still leave monthly repayments only 5.5% higher than buying today — versus 17.2% higher for someone who had already bought before the downturn began.
References
The Conversation – New home loans dropped by a record 15% as Australia’s housing market downturn deepens / The Sydney Morning Herald – Record plunge in investor loans as tax overhaul hits property market
