Highlights

• New dwelling prices rose 5.4 per cent in the 12 months to August as builders passed on higher costs for materials and labour, the ABS said.

• The contrast with the existing-home market is stark.

• 1 Act, which is law, negative gearing for residential property will be limited to new builds starting 1 July 2027.

• Rising construction costs eat into the tax advantage the new rules are designed to give new homes.

Newly built homes are becoming more expensive even as established dwelling values soften. That divergence complicates decisions for investors considering the tax treatment of future property purchases.

What the ABS Figures Show

New dwelling prices rose 5.4 per cent in the 12 months to August as builders passed on higher costs for materials and labour, the ABS said. Housing was the largest contributor to annual inflation in August, rising by 5.7 per cent, said the bureau's Rachael McCririck. Official statistics show that rise reflected rising costs for both New dwellings and Electricity. Headline inflation was 4.0% in the year to August, up from 3.5% in July. The distinction matters because the headline rule rarely tells the entire story. Timing, eligibility and supporting records can change the outcome for two people facing seemingly similar circumstances.

Established Values Falling, Build Costs Rising

The contrast with the existing-home market is stark. Cotality's index shows national home values fell 1.1% in September, were flat over the year, and are 5.2% below their March 2026 peak. That combination creates a squeeze for builders and developers. New home builders are in the eye of a perfect storm. It's much harder to sell new homes when established dwelling prices are on the way down, Master Builders Australia chief economist Shane Garrett said on 1 October. Master Builders now forecasts fewer than 920,000 new home commencements over the five years to 2030–31, 62,000 fewer than its March forecast. A practical decision starts with the numbers, but should not end there. Compare the likely benefit with compliance costs, the chance that assumptions change and any restrictions that apply.

Why Investors Are Being Steered to New Stock

1 Act, which is law, negative gearing for residential property will be limited to new builds starting 1 July 2027. The limit applies to properties bought after 7:30pm AEST on 12 May 2026; anything held at that time is grandfathered. In practice, an investor who buys an established home now generally won't be able to deduct a net rental loss against salary or other income once the rules start. A newly built property keeps that ability. A policy can create an opportunity while still leaving taxpayers responsible for checking the conditions and keeping suitable evidence.

The Sums on a Pricier New Build

Rising construction costs eat into the tax advantage the new rules are designed to give new homes. If its price had risen in line with the 5.4% increase in the ABS new dwellings index, it would now cost $685,100, or $35,100 more. One observation is useful context, not a guarantee about what happens next.

A Narrowing Pool of Buyers for Builders

The squeeze cuts both ways, and it is not only investors who feel it. Builders are passing on higher costs, but established homes are getting cheaper, which makes new homes harder to sell to owner-occupiers who can compare prices. Cash flow, deadlines and documentation deserve attention before any commitment.

What to Watch: Inflation, Rates and the Final Definition

The ABS's next monthly CPI release, covering September, is due later in October, and will show whether new dwelling costs are still climbing. The central bank's response to inflation running at 4.0% will shape borrowing costs for anyone buying new. Proposed rules and draft administrative guidance should be distinguished from provisions already enacted.

General information only. This article is educational and does not constitute personal financial, tax or legal advice.