Why new housing types now have a tax edge

New builds have tax benefits

The Federal Budget has changed how negative gearing and Capital Gains Tax (CGT) work for residential investors, and the clear message is:

“If you help add new homes, you keep the tax benefits.”

In simple terms:

Negative gearing benefits are being restricted to new builds.

CGT concessions are being reshaped so that speculating on existing homes is less attractive than funding new supply.

For owners and developers in Victoria, this creates a strong case for developing a range of new housing types, rather than just holding or selling a single existing dwelling.

Key new build types supported by policy

The current national housing agenda aims to deliver large numbers of new social, affordable and market‑rate homes, backed by programs such as the Housing Australia Future Fund and national supply targets. Within this, several housing forms stand out:

Dual occupancy in Melbourne suburbs – two dwellings on one lot, ideal for owners wanting to downsize into one home and rent the other or hold both as investments.

3 and more townhouse projects – “gentle density” infill that fits local character while adding multiple dwellings where services and transport already exist.

Build‑to‑rent (BTR) projects – purpose‑built rental buildings, which benefit from separate tax concessions such as accelerated depreciation and reduced withholding tax, boosting rental supply over time.

NDIS, Social and affordable housing – is adding to housing supply but might be tested.

A granny flat- even if it is a new build, I understand, will not qualify for negative gearing as it is on the same title as the main dwelling. This again might be tested as it is creating much needed new housing.

All of these forms add net new dwellings, which is exactly what the Budget and related policies are trying to encourage. Some of these types might be tested by the ATO.

We have experience in these types of housing. Contact Swarup for your New Build Town Planning Permit.

Modular housing for homeless adds to much needed housing supply

New builds like townhouses can be negatively geared by investor

Duplex dual occupancy can be negatively geared

New townhouses qualify for negative gearing by investor

A new dual occupancy can be negatively geared

Eight townhouses were approved and can be negatively geared

A typical backyard dual occupancy can be negatively geared if it is a new build

A new build duplex qualifies for negative gearing

New townhouses can qualify for negative gearing in the 2026 Federal Budget

Affordable-social housing adds to housing supply and get tax benefits

A new duplx could qualify for negative gearing

Why dual occupancies and townhouse projects shine in Victoria

For typical Victorian landowners and small developers, the most accessible “new build” opportunities are often dual occupancies and townhouse projects.

A dual occupancy can turn one under‑utilised block into two income‑producing new homes, with the potential for negative gearing on one or both dwellings where they are held as investments.

A townhouse project can unlock the full value of a larger site, with multiple new dwellings all qualifying as new builds for tax purposes, rather than selling a single existing house on a big block. A town house project can offer housing for the elderly or physically disadvantaged.

Recent planning updates in Victoria, show a clear planning direction toward more small‑scale infill and “gentle density”, especially in GRZ and NRZ areas near transport. When combined with the new tax rules, these projects become significantly more appealing to investors.

Build to Rent townhouse

How negative gearing works for these new housing types:

Across these different housing forms, the core negative gearing idea is the same:

If the deductible costs of owning the new dwelling (interest, rates, maintenance, depreciation, etc.) are higher than the rental income, the investor makes a tax loss.

Under the new Budget settings, that loss can generally still be offset against other income only when the dwelling qualifies as a new build investment property.

This can apply to:

A new dual occ unit rented out in a Melbourne suburb.

A row of townhouses held for rent instead of being sold.

A unit within a larger build‑to‑rent project.

Because established homes bought now generally miss out on these benefits, capital is being steered towards exactly these kinds of new developments.

Why this is the right time to explore your site!

Bringing it together, the combination of planning reforms and tax changes means:

Policy and tax both favour new supply, not trading existing homes.

Small and medium‑scale projects – dual occupancies, townhouse schemes and BTR‑style rentals – are squarely in the policy “sweet spot”.

For many Victorian owners, developing now and holding new dwellings as investments can deliver both rental income and targeted tax advantages that are no longer available for most established purchases.

That is why the current Budget is a genuine opportunity point for residential development in Victoria: if your project adds a well‑designed, compliant new home to the market, the tax system is now on your side.

Note:

We advise you to seek expert advice from your accountant or financial adviser on all your tax matters.

All content shown in this publication is general in nature.

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