The federal government's decision to limit negative gearing to newly built homes may achieve the opposite of its intended effect in Western Australia, where a buyer's agent is sounding an early warning about the construction sector's capacity to absorb redirected investor demand.
Announced in the 2026–27 federal budget, the policy preserves negative gearing for investors purchasing new dwellings, while from 1 July 2027, those buying established properties will no longer be able to offset net rental losses against other income such as wages. Investors in new builds will also gain access to an inflation-based capital gains tax indexation model as an alternative to the existing 50% discount.
Perth buyer's agent Peter Gavalas (pictured) said the policy's logic breaks down in a market where new supply is already the problem.
"The government's objective is clear: direct investor demand towards new housing supply. The problem is that in Perth, new housing supply is where some of the biggest bottlenecks already exist," he said.
Western Australia has already fallen behind its National Housing Accord target within the first 18 months, according to the NHSAC's latest quarterly report. The ABS recorded just 4,441 dwelling completions in the December 2025 quarter — a 13.5% decline on the prior quarter and the fourth consecutive quarterly fall — leaving WA on track to finish more than 20,000 homes below target.
Rising construction costs are compounding the problem. Ongoing conflict in the Middle East has pushed fuel and material prices higher after a brief period of stabilisation, while labour shortages in the residential sector remain acute.
Lenders factor negative gearing benefits into serviceability upfront, meaning investor borrowing capacity could shrink before the 2027 changes even take effect, according to Sydney broker Alex Veljancevski of Eventus Financial. A RedZed survey of almost 200 brokers found 85% expect client borrowing capacity to be affected.
It is into this environment that the budget is now directing investor demand.
Gavalas argued that established properties offer a level of certainty that is often undervalued in tax policy discussions.
"Established properties don't carry construction risk. You can inspect them, value them accurately and be confident about what you're buying," he said.
By contrast, he warned that many investors may be unprepared for what a genuine pivot to new builds involves.
"The policy assumes investors can simply switch from established homes to new builds," he said. "In reality, many investors may find there aren't enough suitable projects available, or that the risks attached to construction are much higher than they anticipated."
He pointed to construction delays, cost overruns, financing risk, and the possibility of off-the-plan properties being valued below their contract price at completion as factors that tend to be glossed over in budget coverage.
The stakes are high because WA's investor market is unusually active. According to the Australian Bureau of Statistics, investor home loan commitments in the March 2026 quarter were up 10.8% year-on-year. Overall investor lending in WA has more than quadrupled since 2019, according to Gavalas.
"If governments want investors to fund new housing supply, the industry needs to be able to deliver that supply efficiently and at scale," he said. "Otherwise, demand is simply pushed towards a part of the market that is already struggling to keep up."
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