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Commenting on the Housing Industry Association’s (HIA) latest New Home Sales Report, a monthly survey of the largest-volume home builders across the five largest states, HIA chief economist Tim Reardon said the market “cannot absorb further interest rate increases on top of the tax increases announced in this year’s federal budget”.
He said: “Further interest rate increases would add another constraint to a new home market that is already challenged and the full impact of the rising taxes and rates is still to unfold.
“This is not the time for another rate rise.”
A broad-based decline
According to the HIA’s latest report, new home sales fell by 10 per cent nationally in August, leaving sales 19.3 per cent lower over the three months to August than in the previous quarter and 7.7 per cent below the same period last year.
In the three months to August 2026, sales declined compared with the previous quarter in all the mainland states, led by Victoria (-27.0 per cent) and followed by Queensland (-20.2 per cent), NSW (-17.5 per cent), South Australia (-10.8 per cent), and Western Australia (-8.2 per cent).
Back in May, Treasurer Jim Chalmers said the decision to exempt new builds from the changes to negative gearing and capital gains tax announced in the federal budget was intended to do the opposite, helping “support investment in productive assets, including new housing supply”.
Reardon said that combined with the heightened interest rates, this aim has yet to come to fruition.
“This is a tangible and significant deterioration in market conditions and confirms that the recovery in new home building that was underway at the start of the year, has been interrupted,” he said.
“The tax increases announced in the Federal Budget have weakened market confidence at the same time that three interest rate increases have reduced household borrowing capacity and increased mortgage repayments.
“Falling established home prices and rising construction costs are outcomes from the rise in taxes and interest rates and are making new home projects increasingly difficult to finance.
“It is not possible to isolate precisely how much of the deterioration in new home sales is attributable to higher interest rates, increased taxation or broader economic uncertainty.
“What is clear is their combined effect.”
Australia’s broader housing market has also shown signs of softening since April, with price growth weakening particularly at the top end of the market. Major banks have likewise reported softer mortgage demand in their latest financial results.
Property investors stretched
As tax changes and rate hikes pile on the pressure, data reported in sister brand The Adviser suggests the strain is beginning to weigh on investor behaviour.
According to the Property Investment Professionals of Australia’s (PIPA) 2026 Annual Investor Sentiment Survey, 18.3 per cent of the 626 investors surveyed had sold at least one investment property in the 12 months to August 2026.
That was up from 16.7 per cent over the same period in 2025 and 14.1 per cent in 2024.
Meanwhile, 62.3 per cent of respondents said their investment properties were running at negative cash flow, up from 56 per cent a year earlier and more than double the 30 per cent low recorded in 2022.
Reardon said the full impact of the deterioration in demand would take time to flow through to the market, although there were already signs of a slowdown.
“Investors and households are retreating from the new home market and the pipeline of homes progressing towards construction is contracting,” Reardon said.
“Builders are also reporting weaker traffic through display sites, fewer inquiries and declining preliminary commitments, while cancellation rates are rising.
“There was a substantial volume of work in the pipeline when these pressures emerged, which means the deterioration in sales will not be immediately evident in housing commencements and is unlikely to adversely impact commencements of new homes in 2026.
“But today’s new home sales are tomorrow’s housing commencements.
“The decline in sales through the middle of 2026 will mean fewer homes commencing construction in 2027.”
SMSF changes
The changes to self-managed super funds (SMSFs) have also had a broader impact than initially anticipated.
Data published by the Australian Finance Industry Association (AFIA) in July 2026 found that its specialist non-bank lender members wrote more than 16,000 new residential loans to SMSFs during the 2025–26 financial year, backed by $10.3 billion in security.
This is compared with the government’s working assumption of around 4,000 new limited recourse borrowing arrangements (LRBAs) a year.
Additionally, a HIA survey of Australia’s largest home builders found that the SMSF changes alone could reduce detached-home commencements by between 3.5 per cent and 5 per cent annually.
The association further warned that about 2,500 new-home contracts already signed were expected to be cancelled due to buyers and developers failing to complete the necessary administrative arrangements before the deadline.
Brokers speaking to Broker Daily have also raised concern over the ban’s impact on housing supply.
[Related: Younger buyers go big on deposits despite affordability pressures]
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