Negative Gearing in 2026: What the New-Build Exemption Means for Developers

Negative Gearing in 2026: What the New-Build Exemption Means for Developers

On budget night this May, the rules around negative gearing changed. From the middle of 2027, the tax treatment investors have relied on for decades stops applying the same way to established residential property. You have read the headlines. You have probably already had the conversation with your accountant.

I have spent almost three decades designing the structures that make up Australia's housing supply. Apartments, townhouses, mixed-use towers. I am not going to tell you whether this change is good policy or bad policy. I am an engineer. I deal in solutions, not commentary, and that debate belongs to other people.

What I can tell you is what the change does to the buildings, and to the projects developers are now deciding whether to build. Because inside the detail is one line that matters more to a developer than almost anything else in the announcement. New builds are exempt. That single carve-out turns new residential construction into the asset class the new rules are built around, and whether a new build actually gets delivered, on programme and on budget, is more of an engineering question than most people realise.

What Changed on Budget Night

Here is the change, stated plainly, and then I will get out of the tax lane and back into mine.

From 1 July 2027, negative gearing is being wound back for established residential properties bought after 7:30pm on 12 May 2026. An investor who buys an established home after that point can no longer offset the rental loss against their salary or other personal income. The loss can still be applied against rental income from other properties, or against future capital gains when a rental property is sold, and any excess can be carried forward. Investors who already own their properties, and those who were under contract before budget night, keep the current rules.

The detail of how this applies to you, your structure, your trust, your timing, is a conversation for your accountant and your financial adviser. Not for me. I am not going to pretend otherwise.

New Builds Are Now the Exemption

Here is the part that sits squarely on my desk.

Eligible new builds are exempt from the change. An investor in a qualifying new build keeps negative gearing, and keeps the 50% capital gains tax discount, under the existing rules. The established-property market loses the treatment. New construction keeps it.

Think about what that does to investor demand. For years, an investor weighing a new apartment against an established one was comparing two assets with broadly the same tax position. From 2027, those two assets are taxed differently. New construction becomes the residential asset class that still carries the treatment investors price in.

What counts as an eligible new build, an off-the-plan apartment, a knock-down rebuild that delivers more dwellings than it replaces, construction on vacant land, has its own definition, and again, the eligibility test belongs with your adviser. The engineering point holds regardless of the fine print. The reward has moved to new stock.

I am not here to forecast the property market. But I have watched capital move toward whatever the settings reward for almost three decades, and the settings now reward building. For a developer, that is a tailwind. The question is whether your project is built to catch it.

Why This Lands on the Engineer's Desk

A developer reads an announcement like this and asks one question. Does my project still stack up?

That question gets answered in a feasibility model. Land cost, construction cost, finance cost, sales revenue, holding time. When the model says yes, the project proceeds. When it says no, the capital goes elsewhere, and a site that could have held forty homes holds none. I have written before about whether Australia's housing target is actually on track, and the short version is that supply is the whole game. A demand setting like this one only matters if the buildings get built.

For almost three decades I have watched feasibility models decide which buildings go ahead. The line in that model with the most movement in it, the line a developer has the most genuine control over, is construction cost. Land is land. Finance is finance. The market sets the sale price. Construction cost is the number engineering can actually move.

That is why this lands on my desk. When the settings tilt demand toward new builds, the developers who win are not the ones with the best site. They are the ones whose projects are engineered to be feasible.

Feasibility Lives in the Construction Cost

Let me be specific, because specificity is the only thing worth your time here.

Structural, civil and geotechnical decisions shape a large share of a development's construction cost. The frame, the basement, the foundations, the shoring. These are not line items you simply accept. They are line items you design.

A few examples from projects we have delivered, with the names left out of it.

On one residential project, reviewing the car park layout at concept stage showed that one fewer basement level would still meet the parking requirement. That single decision took roughly $800,000 out of excavation, shoring and basement construction.

On another, moving a column 300mm at concept stage removed a transfer beam that would have cost $50,000 to build. The architecture did not suffer. The transfer beam simply was not needed.

Across a multi-storey superstructure, disciplined value engineering, modelling the loads properly and specifying to what the structure actually needs rather than to a comfortable default, routinely takes 10 to 15% out of the structural construction cost. On a project of any real size, that is hundreds of thousands of dollars. When we specify a 450mm beam where a heavier default would have called for 900mm, it is because we have run the analysis and confirmed the result holds. Not a single safety factor is touched.

None of that is exotic. It is what early, coordinated engineering does. And on a marginal feasibility, it is often the difference between a project that proceeds and one that does not.

How We Make a Marginal Project Stack Up

This is where I switch from I to we, because what follows is how the firm works, not how I think.

We built ACSES around getting engineering in early. The structural, civil and geotechnical scope on a development is not something to hand off once the architecture is locked. By then the column grid is fixed, the basement is set, and the engineer's job has shrunk to making a frozen design stand up. The savings have already left the room.

Engaged at concept or DA stage, the work is different. We test the structural system before it is committed. We size the basement against what the project genuinely needs, not against a default. We flag the constructability problems while they are still cheap to solve.

Our structural engineering and geotechnical engineering teams work the same project from the same office. A development carries structural, civil and geotechnical risk at the same time, and when those disciplines are run by three separate firms, the gaps between them become the developer's problem. Under one roof, there are no gaps to fall into. If it is engineering, it is our responsibility.

We also design drawings to be built. A drawing set a builder can price accurately and construct without a stream of questions is a drawing set that protects the feasibility you started with. Every avoidable RFI on site is cost and time leaking out of the project. We design for the construction site, with real formwork and real concrete, not for a screen.

What to Do Before You Commit

If you are weighing a new residential project in light of the budget change, here is what I would do, as an engineer.

1. Bring your engineer in with your architect, not after the DA. The concept stage is the only point where the structural system, the basement depth and the construction methodology are still genuinely open. That is where feasibility is won or lost.
2. Treat the engineering scope as a feasibility lever, not a fixed cost. Ask your engineer, early, where the cost actually sits and what moves it. A good engineer answers with numbers, not adjectives.
3. Confirm the eligibility detail with your accountant before you rely on it. Whether a specific project qualifies as a new build for the exemption is a tax question, and tax questions belong with tax professionals.

My lane is the one after that. Once you decide to build, making sure the building is engineered to be feasible, compliant and genuinely buildable.

The Tax Rules Changed. The Engineering Did Not.

Strip away the tax language and here is what is left. The budget has pointed more investor demand at new residential construction. That is an opportunity for the developers who build.

But the change does not make a marginal project feasible. It does not pour a slab, size a footing, or take a level out of an excavation. Engineering does that. The incentive moved. The work of turning a site into a building that stacks up is exactly the same work it was the day before budget night.

For almost three decades that work has not changed, and it will not change now. The projects that succeed are the ones engineered properly from the first concept sketch. The ones that work on paper AND on site.

The tax rules changed. The engineering did not. That is where your next project is still won.

Building Relationships Beyond Structures