Australia’s property market is being transformed in the largest shake-up of the past 40 years, with changes to negative gearing, CGT and SMSF LRBA’s creating confusion and uncertainty for existing and aspiring property investors.

In his June 2026 Market Update, InSynergy’s Chief Economist, Dr Kevin Hoang, outlines the early effects of these housing tax reforms and which capital areas are becoming hot property opportunities for smart investors.

Housing tax reform in Budget 2026 

The national housing market has entered a new phase after 5 years of recorded strong growth since the pandemic. The combined impact of the 2026 Federal Budget housing tax reforms, recently passed changes to SMSF for residential property, higher interest rates, stretched affordability in expensive cities, and weaker buyer confidence is now flowing through to buyer and seller behaviors and eventually new price trends. 

The key Budget change is the removal of negative gearing for future investors purchasing established dwellings acquired after 7.30 pm 12/5/2026, while retaining negative gearing and capital gain tax discount for brand-new properties. The current 50% capital gains tax discount will also be replaced by an inflation-indexation model from 1 July 2027, together with a minimum effective tax rate of 30% on gains. 

According to the government, the objective of the changes is to reduce investor demand for established dwellings and redirect investment capital toward new housing supply. In the short term, the reforms reduce the after-tax return on established investment properties, particularly for highly geared investors. This weakens investor demand, increases uncertainty around pricing trends, and higher risks of correction in markets where prices have been supported more by tax benefits and capital growth expectations. At the same time, markets that have strong fundamentals and high yields are predicted to withstand the changes better. 

The Early Market Adjustments 

The national housing market is still supported by tight rental supply, population growth, and under delivery of new housing. However, the sales market has lost momentum in selected high price and highly geared markets.  

Cotality’s latest report indicated that, in June 2026, home values dropped most in Sydney, Melbourne and Canberra: 

• Sydney: –1.2% in June and +0.3% annually 

• Melbourne: -1.0% in June and -0.9% annually 

• Canberra: -0.6% in June and +2.9% annually 

At the same time, mid-sized cities – including Adelaide, Perth, Brisbane, and Darwin – continue to grow or hold their values.  

• Adelaide: 0% in June and +11.6% annually 

• Perth: +0.7% in June and +23.9% annually 

• Brisbane: +0.3% in June and +17.9% annually 

• Darwin: +1.4% in June and +19.8% annually
  

Home Value Index, June 2026 

Source: Cotality 

This shows that the national market is more fragmented: Sydney and Melbourne are now more exposed because they combine stretched affordability, higher debt levels, weaker auction demand, lower rental yields and greater sensitivity to investor tax changes. Parts of Melbourne are also facing localised over supplied risk, particularly in apartment and investor stock markets where listings are rising. 

By contrast, Perth, Brisbane, Adelaide and Darwin remain better supported by stronger rental yields, tighter vacancy rates, lower relative entry prices and stronger affordability compared with Sydney. These markets are not totally immune to higher rates or policy uncertainty, but the current price levels are aligned with local household incomes and supply constraints in these cities. 

To put in perspective, a $2m property in Syndey could cost investors $60k to hold, while $1m property in Adelaide or Brisbane only requires $15-$20k to hold per year thanks to better yields. Driven by demand from higher first home buyers and investors, the demand in affordable cities or segments is stronger than in expensive cities that support the holding of property values. 

Auction results show buyer demand has weakened in selected cities 

Auction conditions have been adjusting in recent weeks. In the week ending 28 June 2026, capital city auction clearance rates fell to below 50%, which is below the long-term trends at around 60% to 65%.  

Auction Clearance Rate, Week Ending 30th June 2026 

Source: Domain 

Sydney’s clearance rate was 48%; Melbourne was 50%; Adelaide was 50%; Canberra was 45% and Brisbane was materially lower at around 35%. It is noted that the most preferred sale method in Brisbane and Adelaide is by offer, so low auction clearance rates do not necessarily indicate the market strength in these two cities. 

Within each city, the weakness is most visible in premium and highly leveraged established-property segments. These are the parts of the market where affordability is most stretched, rental yields are low, and investors are most exposed to the loss of negative gearing benefits for future purchases. 

The good news is that transactions are still happening that indicates properties are selling at the right prices. Nevertheless, it does suggest that the market moves from a seller-led environment to a more selective, buyer-led environment, as well as from expensive and highly negative geared to affordable and high yield locations.

Rental markets remain structurally tight

The rental markets remain extremely tight across the country. This is one of the strongest drivers that will set a floor to the price adjustments. 

SQM Research reported that the national vacancy rate was 1.2% in May 2026, with 37,844 vacant rental dwellings nationally. All capital city vacancy rates remain below 2%, well under the 3% level normally considered a balanced rental market. 

The tightest rental markets are: 

• Darwin: 0.3% 

• Hobart: 0.5% 

• Adelaide: 0.7% 

• Perth: 0.6% 

• Brisbane: 0.8% 

Sydney and Melbourne are less tight, but still below balanced conditions, at 1.3% and 1.5% respectively. 

National asking rents increased 5.9% over the year, which indicated that rental demand remains strong. This helps to ease the holding costs for investors in the context of higher interest rates and higher costs of living. 

More broadly, the policy changes could make rental conditions getting worst over time. If fewer investors purchase established dwellings, and some existing investors exit due to higher costs or weaker after-tax returns, the rental pool may shrink further. In addition, the new developments would become more difficult to get off the ground due to weaker sentiment. This would place additional upward pressure on rents, particularly in established suburbs where people want to live but where new housing supply is difficult to meet the demand. 

Population growth continues to add housing demand 

Australia’s population has just surpassed 28 million in June 2026, increasing by 412,500 people over the year. Net overseas migration was 301,000 people, while the natural population increase was 111,500 people. 

The fastest-growing states were: 

• Western Australia: +2.2% 

• Victoria: +1.7% 

• Queensland: +1.6% 

• Northern Territory: +1.6% 

High population growth continues to support underlying housing demand, particularly in rental markets and major employment centres. Most newly arrived migrants are skilled migrants, who need housing as soon as they arrive. They tend to rent first then buy after a few years. This will create continued rental pressure in metropolitan and established areas.

Housing supply remains below target 

ABS building activity data shows dwelling commencements rose 8.0% in the December quarter 2025 to 53,567 dwellings. This is an improvement in comparison to previous quarters, but it remains below the level required to meet the National Housing Accord target of 240,000 homes per year. 

The construction sector continues to face elevated construction costs, labour shortages, higher borrowing costs, builder insolvency risk and long delivery timeframes. These factors limit how quickly new housing can be added when demand remains strong. 

A shortage of housing does not mean every property will rise in value. Poor-quality assets, overvalued suburbs, low-yield properties and locations with rising competing supply can still underperform under the new market environment as buyers are more selective. 

Housing price forecasts from leading property forecaster 

Domain’s FY2027 Forecast Report points to a more fragmented Australian housing market over the year to June 2027, where affordability, borrowing capacity, new tax policy and local supply conditions will determine the next 12 months trajectory. 

The key finding is that the higher-priced and more interest-rate-sensitive markets – particularly Sydney, Melbourne and Canberra – are expected to soften, while Brisbane, Adelaide and Perth are forecast to continue growing.  

Units are expected to perform better than houses in several markets because affordability constraints are pushing more buyers toward lower-priced housing options. 

In the report, Domain also pointed out that the main downside risks are higher mortgage rates, weaker buyer sentiment, tighter borrowing capacity, and the impact of federal housing tax changes on investor demand.  

At the same time, the main support factors are population growth, tight rental markets, low housing supply, and relative affordability in the strongest-performing capital cities. 

What this means for investors 

It is no doubt that the property market has entered a new phase where more due diligence and assessment of the right markets and types of property are required to make informed decisions. 

Based on the current market trends, it is predicted that Sydney and Melbourne are more exposed to correction because affordability is stretched, yields are lower, listings are rising and investor demand is more sensitive to the tax reforms.  

At the same time, Perth, Brisbane, Adelaide and Darwin remain better supported by tighter rental markets, stronger yields and better relative affordability. For example, housing costs as the percentage of household income in Darwin is just 22%, which is much lower than the current levels in Sydney at 55% that will support growth in Darwin as well as in other affordable cities. 

While tax policy is a part of the investment parameters, investors should also focus on other broader picture that will shape the property market in the long-term, such as cash flow, rental depth, supply constraints, location quality and long-term demand fundamentals.