Real estate agents face a shifting market landscape as federal tax reforms displace interest rates as the most widely cited downward pressure on house prices, while a newly released Reserve Bank of Australia (RBA) survey reveals widespread community misunderstanding of how interest rates affect inflation.
According to the Australian Property Institute’s (API) first post-Budget survey of property professionals, the Q3 2026 Australian Property Market Outlook, which surveyed 265 property professionals between 12 June and 6 July 2026, the negative gearing reform is now the most widely cited downward pressure on residential prices, flagged by 82 per cent of respondents.
This exceeds both the capital gains tax (CGT) reform and the interest rate outlook, which were both cited by 77 per cent of respondents. While the interest rate outlook remains the commonly agreed source of downward pressure across every other asset class, this marks the first time it does not top the list in the residential market.
Although the reforms do not take effect until 1 July 2027, replacing the 50 per cent CGT discount with an inflation-based discount for gains accruing from 1 July 2027 with a minimum tax of 30 per cent, and limiting negative gearing to new dwellings from the same date, the outlook shows the market is not waiting.
Properties held before Federal Budget night, 12 May 2026, are not affected by the negative gearing change; nevertheless, residential sentiment recorded the steepest fall of any asset class, dropping from 6.0 to 5.0 on the API’s ten-point scale, and the headline API Property Market Outlook Index fell for a third consecutive quarter to 5.1.
API Chief Economist Dr Sherman Chan said the survey converted months of speculation about the reforms into a measured industry position.
“Since Budget night there has been no shortage of opinion about what these reforms will do. This is the first time the professionals who value residential property for a living have been surveyed on it, and their message is clear: the market is pricing these reforms now, more than a year before they begin.”
The survey found a striking asymmetry in expectations: consensus on who will be worse off, and no consensus that anyone will be better off. Some 63 per cent of respondents expect the negative gearing changes to make housing more unaffordable for renters, and 62 per cent expect the same from the CGT reform.
Views on whether home buyers will benefit fell short of consensus (48 per cent for negative gearing and 46 per cent for CGT), and there is no consensus the reforms will achieve their stated purpose of boosting supply.
More respondents believe the CGT reform will reduce new housing supply beyond July 2027 (34 per cent) than believe it will increase it (23 per cent).
For the negative gearing reform, 31 per cent expect supply to fall against 28 per cent who expect it to rise.
“The reforms were introduced to support first home buyers and stimulate new housing supply. The professionals closest to the market are not convinced the supply will materialise, but they are convinced that renters will be worse off. That is a significant finding for policymakers, because renters are the group with the least capacity to absorb higher housing costs,” Dr Chan said
“The residential market is now caught between two opposing forces. The structural undersupply that has driven prices for years is still there. What has changed is that tax policy is now pulling just as hard in the other direction, and sentiment has fallen from the strongest of any sector to neutral in nine months.”
While forces like lack of housing supply (82 per cent), lack of land supply (73 per cent), population growth (70 per cent), and construction costs (63 per cent) are still expected to push prices higher, state-by-state data shows that Victoria (4.1) and New South Wales (4.4) have reached a turning point, both falling below the neutral level. Queensland (6.6) and Western Australia (6.4) remain the most optimistic states, though WA and South Australia (5.6) recorded the sharpest declines this quarter. Tasmania recorded 5.8, while Australia overall sat at 5.1 (down from 6.0 in Q2).
Meanwhile, industrial property remains the market’s most resilient sector at 6.4, supported by lack of supply (61 per cent) and zoned land (55 per cent), with WA highest at 7.4. Office eased to 4.6 (weighed down by business confidence at 68 per cent), Retail slipped to 4.9 (weighed by consumer confidence at 66 per cent), and Agriculture held at 5.8, where the CGT reform was cited as a downward pressure by 59 per cent of respondents.
RBA survey exposes key public knowledge gaps
Adding crucial context for real estate agents dealing with buyers and vendors, a new RBA Bulletin article titled Listening to Australians: A New RBA Survey of the Community released findings from 9,000 Australians surveyed across three waves (February 2025, September 2025, and late February/early March 2026).
The RBA survey confirms that inflation remains the top economic concern for all Australians, cited by around two-thirds of respondents.
However, while around 50 per cent correctly assessed that higher interest rates slow economic activity and employment (compared to 30 per cent who incorrectly judged they would increase them), there is a large gap regarding inflation.
Only 25 per cent of respondents correctly assessed that higher interest rates would ultimately lead to lower inflation, while more than half indicated that higher interest rates would lead to higher inflation due to “cost-push” reasoning.
The RBA authors noted:
“The finding that households expect higher interest rates to increase, rather than reduce, future inflation has important implications for how monetary policy decisions are understood by the Australian community. It could contribute to community frustration with monetary policy decisions if the decisions are interpreted as adding to inflation and, in turn, this could weaken confidence and trust in the RBA.”
Furthermore, younger respondents were more likely to incorrectly think the RBA sets tax rates, regulates the housing market, or provides banking services to households.
Key takeaways:
- Vendor Price Expectations: In NSW (4.4) and Victoria (4.1), market sentiment has officially dipped below neutral. Agents must prepare vendors for a market where buyers are actively pricing in the 2027 tax changes today.
- Investor Strategy: Existing properties acquired prior to 12 May 2026 retain their negative gearing benefits under grandfathering rules. Agents can use this factual detail to encourage existing investors to hold assets.
- Focus on New Builds: Because negative gearing will be restricted strictly to new dwellings from 1 July 2027, marketing off-the-plan developments and house-and-land packages will become a primary strategy for attracting property investors.
- Rental Market Pressures: With 63 per cent of property professionals predicting negative gearing reforms will worsen rental affordability, property managers should prepare landlords and tenants for ongoing yield adjustments and tight rental supply.