Australia's housing market is heading for its flattest year in a decade, with Westpac Economics warning that federal budget tax changes and two further rate rises will drive a 20% fall in dwelling turnover and stall national price growth through 2026.
The bank's June 2026 Housing Pulse, authored by Matthew Hassan and Neha Sharma (pictured left to right), warns that the restriction of negative gearing deductions against non-property income for new investments in existing dwellings — and a switch from a flat 50% CGT discount to CPI indexation — will drive a 34% fall in new investor activity.
Westpac's national price forecast for 2026 has been cut to flat, implying a 2% fall in the second half of the year after prices rose approximately 2% in the first half.
"The combination of uncertainty around tax changes and a sharp drop in turnover could see markets hit a more material 'air pocket' near term," the report said.
Price corrections are most pronounced in Sydney and Melbourne. Sydney dwelling prices declined 0.8% in April and 0.9% in May, with daily measures tracking a further 1% fall in June — taking annual growth to below 1%. Melbourne has been weaker still, with prices having gained just 1.4% over five years against a national average of 33%, and annual growth now dipping back into negative territory.
Brisbane, Adelaide and Perth are still posting positive annual gains, though momentum is clearly slowing across all three markets.
Auction clearance rates have deteriorated materially, with Sydney tracking 46–49% and Melbourne 51–53%, down sharply from 55–57% in February. On-market supply is building in both cities, with Sydney total listings now above three months of sales — shifting conditions firmly toward buyers.
That shift is already being reflected in how lenders are pricing investor risk. Major banks including CBA, ANZ, NAB and Macquarie have revised their investor serviceability policies, removing negative gearing add-backs for new purchases of existing properties contracted after 12 May, with broker estimates suggesting investor borrowing capacity could fall by up to 20%.
Home loan enquiry data compiled by Equifax — a leading indicator for finance approvals — is currently trending lower at a 4.3% monthly pace, with Q3 tracking towards a 15% quarterly fall in new finance approvals. Investor intent data points in the same direction — a Money.com.au survey found 61% of property investors would scale back or exit the market if the CGT and negative gearing reforms proceed, with sensitivity highest among investors in South Australia and Queensland.
Adding to the complexity, building cost pressures are spiking — supplier price notifications surged in the June quarter — a complication for the new-build pipeline that investors are now being redirected toward. Risk aversion among consumers has returned to extreme highs not seen since mid-2023, with only 4.5% of Australians nominating real estate as the wisest place for savings, compared to a historical average of 24%.
For brokers, the practical read is a more hesitant client base, a tightening lending environment, and growing demand for expertise in the new-build carve-out.
For more detail, read the full Westpac Housing Pulse, June 2026, available at westpaciq.com.au.
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