Labor 2026 budget introduces housing reforms targeting capital gains tax and negative gearing

The Australian Labor government has released its 2026 federal budget, featuring a $2bn infrastructure initiative and significant changes to capital gains tax and negative gearing for investment housing effective from 1 July 2027. While the measures aim to address intergenerational wealth inequality and increase home ownership, the government broke a pre-election commitment to leave these tax policies unchanged.

Treasury modelling suggests the tax reforms could lower median national home prices by $19,000 and allow an additional 75,000 Australians to own homes over the next decade. The proposed changes to capital gains tax and negative gearing are considered the most contentious announcement, as they represent a strategic shift to address the tax advantages previously granted to older and wealthier Australians at the expense of younger generations.

The budget also introduces a conditional $2bn infrastructure package aimed at unlocking an additional 65,000 new homes over the next decade. This funding is contingent on state and local governments implementing planning, zoning, and productivity reforms to ensure the supply of housing can meet the demand generated by the tax changes.

However, the same modelling suggests these tax changes may reduce new housing investment by 35,000 units, effectively halving the potential impact of the infrastructure spending. The government estimates that if realised, such reforms would further add to supply, though the reduction in investment remains a key variable in the overall equation for housing availability.

Housing affordability has declined significantly over more than two decades, creating a perceived issue of intergenerational inequality. Successive governments of both major parties have historically avoided addressing this issue due to conflicting interests between current homeowners and would-be buyers, with the Howard government credited with introducing the property tax concessions that have contributed to the current generational wealth divide.

The 2026 budget process is characterised by extensive pre-leakage of substantive measures, leading to a crowded policy agenda. None of the measures will change the outcome for most would-be home buyers in the short term, but the suite of policies is designed to go well beyond one electoral cycle to address long-standing structural issues.