The Federal Budget’s negative gearing reforms are set to redirect private investment towards new housing supply, with broad implications for developers and buyers. Project feasibility is tipped to improve alongside the delivery of a greater volume of smaller, more affordable apartments. The reforms won’t just benefit investors, they are set to unlock more choice for first home buyers (FHBs).
The shift comes after eight years of significant change in Sydney’s new apartment market, which saw off-the-plan investors retreat while downsizers became a dominant buyer group. With developers increasingly designing projects around owner-occupier demand, the diversity of housing stock has narrowed – leaving little opportunity for FHBs in the sub-$1 million price bracket.
How Investors Impact the Homes We Build
Preserving negative gearing benefits for new builds incentivises investment in new development projects that add critically needed housing supply, according to Colliers’ recently-released 2026 Federal Budget Overview. Off-the-plan investor transactions have dwindled by around two-thirds over recent years.
In 2018, investors accounted for around 50% of off-the-plan sales inquiries in Sydney – today, they represent closer to 15%.
As investor demand cooled, developers’ attention shifted to the owner-occupier market – driven predominantly by downsizers. Large three and four-bedroom apartments with price tags of up to $3 million became more common, with one and two-bedroom floorplans sacrificed. The feasibility of smaller and more affordable apartments was constrained by rising construction costs, further squeezing supply.
Investors are often less concerned with aspect, finishes or floorplan efficiency, and focus on the mechanics of affordability and rental demand – typically favouring one and two-bedroom configurations.
And with investor demand now tipped to strengthen, Sydney developers will have greater confidence to deliver more apartments in smaller formats.
The result will be a more balanced mix of housing stock that will not only drive investor activity but will ultimately benefit those who most need help in this market: FHBs.
Developer Case Study: Market Shift Shaping Real-Time Changes to Projects
Residential developers are expected to amend new apartment projects to capitalise on improved feasibility and an uptick in investor interest.
For Sydney-based developer Ellipse Property, these shifting market dynamics are already influencing changes to the planning approach at its multi-stage Castle Hill masterplan, Carrington Place.
Ellipse is seeing more investor inquiry for Lily Lane – Carrington Place’s newly-launched second stage – than it did for its first stage, Atrium. Investors comprise 19% of sales to date at Atrium, whereas at Lily Lane, they account for 27%.
While the first two stages focused on larger house-like apartment configurations tailored to downsizers, Ellipse is currently reassessing upcoming stages to ensure the right balance of product.
The Hidden Winner: First Home Buyers
The retention of negative gearing benefits for new builds has significant implications for FHBs. Reduced investor demand for established housing combined with increasing supply of smaller, lower-priced apartments will unlock greater choice.
By Luke Hayes, Director of Residential Project Marketing at Colliers
The reforms will likely further accelerate the rise of rentvesting, where buyers purchase an investment property where they can afford while continuing to rent in their preferred location. Rentvesting offers a practical pathway into the property market, allowing FHBs to build equity without sacrificing lifestyle.
Investors may also hold properties for longer due to the higher tax liabilities associated with buying and selling. Over time, this could increase the supply of rental housing and help stabilise Sydney’s unit rents.
And even though FHBs can’t use current grants and incentives to secure an investment apartment, the relaxing of schemes like the First Home Owner Grant (FHOG) to allow this would be a further welcome boost to supply.
Sydney’s housing challenges won’t be solved by any single policy. But the negative gearing reforms have the potential to increase the supply of critically needed new housing while balancing the product mix in the pipeline of new apartments.
The reforms could totally reshape Sydney’s off-the-plan apartment market and deliver a more accessible housing ecosystem that benefits developers, investors, first home buyers and renters alike.
