Key Highlights

  • The RBA forecasts dwelling Investment to fall 2.8% in 2027.
  • Dwelling investment is forecast to grow 5.1% in the year to December 2026.
  • The new-build limit begins on 1 July 2027 for relevant post-budget-night acquisitions.
  • The cash rate rose to 4.85% from 3 November 2026.

The Reserve Bank expects home building to shrink in 2027, the same year the government's new-build-only negative gearing rule starts. In its November forecasts, the RBA tips dwelling investment to fall 2.8% in 2027 after growing this year, with further falls into 2028. The forecast tests a key assumption behind the reform: that steering investors towards new homes will help lift housing supply, at a time when prices, sales and builder confidence are all under pressure.

What the RBA is forecasting

The forecasts accompany the RBA's November 2026 Statement on Monetary Policy, released after the Board lifted the cash rate to 4.85% on 3 November.

The RBA forecasts dwelling investment to grow 5.1% in the year to December 2026, then fall 2.8% in 2027.

The forecasts show a 3.5% fall in the year to June 2028 and a 1.8% fall over 2028.

Those forecasts assume a cash rate of about 4.9% by mid-2027 and 4.8% from late 2027, with no cuts.

Forecasts are not certainties. The RBA's outlook depends on interest rates, the economy and how households and builders respond to policy changes, and it will be revised.

The RBA names tax changes among the causes

The RBA's November Statement says national housing prices were 4.7% below their recent peak in September.

It says prices fell after the March peak mainly because of Monetary Policy and the tax changes in the federal budget.

The RBA also notes that HIA new home sales "declined materially", with builders reporting fewer enquiries and lower conversion rates.

Builders in the RBA's liaison program cite "higher interest rates, tax reforms and broader economic uncertainty".

On rents, the RBA says CPI rent Inflation rose to 0.9% in the September quarter, from 0.6%, and was 3.6% over the year. It says vacancy rates have risen modestly.

Private data point the same way. Cotality reported on 2 November that national home values fell 1.2% in October, a seventh straight monthly fall, leaving them 6.7% below the March peak, or about $63,400 off the median dwelling.

In August, Treasurer Jim Chalmers conceded government "policy changes" were adding to pressure on prices. Treasury modelling had the tax changes leaving prices about 2% lower after several years.

The negative gearing rule: what is law and when it starts

The negative gearing change is enacted law, passed as part of the Tax Reform No. 1 Act 2026.

It applies to residential properties bought after 7:30pm AEST on 12 May 2026, budget night. From 1 July 2027, negative gearing for those properties is limited to new builds. Existing holdings are grandfathered.

The same Act replaces the 50% Capital Gains Tax discount with cost-base indexation and a 30% minimum tax, for gains accruing from 1 July 2027.

Hypothetical example: an investor on a 30% marginal tax rate buys an established unit after budget night and makes a $12,000 net rental loss in 2027–28. Under the old rules, deducting that loss against wages would have reduced tax by $12,000 × 30% = $3,600, before the Medicare levy.

Under the new rule, that investor would generally not get the same deduction against wages, because the property is not a new build. Had the investor bought a qualifying new dwelling instead, the deduction would generally remain available.

That difference in tax treatment is the incentive the policy is meant to create. The idea is that investor money directed to new dwellings adds to the housing stock, rather than competing with owner-occupiers for existing homes.

Hypothetical example: what the forecasts mean in index terms

Hypothetical example: treat the level of dwelling investment at the end of 2026 as an index of 100.

A 2.8% fall in 2027 takes it to 100 × (1 − 0.028) = 97.2.

A further 1.8% fall in 2028 takes it to 97.2 × (1 − 0.018) = 95.45, rounded.

On those figures, home building activity would be a little more than 4.5% lower at the end of 2028 than at the end of 2026, if the RBA's forecasts proved accurate. This is a simplified illustration, not an RBA calculation.

Approvals, developer sales and the Supply gap

Some data look consistent with investors shifting towards new apartments, though no cause has been established.

The ABS reported on 2 November that total dwelling approvals rose 5.1% in September, seasonally adjusted, to 17,948. Private house approvals fell 5.3%, while private dwellings excluding houses rose 16.6%.

In original terms, apartment approvals rose 25.6% to 4,129. The ABS did not attribute the change to tax policy.

Developer sales tell a weaker story. Mirvac sold 429 homes in the September quarter, down from 619, and Stockland had 1,506 net residential lot sales, down from 2,117, according to figures cited by the REIQ.

The REIQ says the new-build rule ignores investors' whole-of-life returns and that "some may choose not to invest in housing at all".

"Today's weaker Demand risks becoming tomorrow's housing shortage," said the REIQ's Antonia Mercorella.

The forecasts matter because of the scale of the housing target. Under the Housing Accord goal of 1.2 million homes by 2029, about 240,000 approvals a year are needed.

There were 208,181 approvals in the year to August, with completions running at about 175,000 a year according to the National Housing Supply and Affordability Council.

A shrinking building pipeline in 2027 and 2028 would make that gap harder to close, unless conditions improve faster than the RBA expects.

What to watch

The Senate Economics Committee is due to report on 13 November on the Tax Reform No. 3 Bill, which is still before Parliament and is separate from the enacted negative gearing rule.

Victorians vote on 28 November, with property taxes a live issue. MYEFO in December will update federal forecasts.

Cotality's next monthly home value index is due on 1 December. The RBA's next Statement on Monetary Policy, expected in February, will show whether the building forecasts have been revised.

The negative gearing and CGT changes start on 1 July 2027. The minimum tax on discretionary trusts, proposed in a bill, would start from 1 July 2028.