Spring may have arrived across much of Australia, but the latest housing data shows little sign of the market warming up. Sydney dwelling values fell a further 1.4% in August, according to Cotality, while Melbourne, Brisbane and Canberra also recorded monthly falls of 1% or more. Nationally, home values are now 3.6% below their March peak, although they remain 2.7% higher than a year ago.

While the headline numbers point to a broader downturn, there is little evidence of a market in distress. Distressed listings remain close to a seven-year low, according to Domain, with many households supported by built-up equity and choosing to sit tight or refinance rather than sell. More interestingly, new lending data suggests investor behaviour may already be shifting following the May Budget tax changes, with implications for where future housing supply is able to come forward.

Even so, a lift in listings over the traditionally busier spring period is likely to keep a downward pressure on values. Any further falls should, however, be tempered by the underlying supply-demand imbalance, supported by population growth and falling levels of housing delivery.

LENDING VOLUMES SHIFT FOLLOWING TAX CHANGES

Against this backdrop, total lending for home purchases fell 5.2% over the June quarter, according to the ABS. The June quarter provides an early indication of how lending activity may be responding to the May Budget changes, although higher interest rates are also influencing borrower behaviour. Investors - the group most directly targeted by the policy changes - recorded the sharpest pullback, with total investor lending down 10% nationally over the quarter.

Looking beneath the headline, the exemption for new build product appears to have begun redirecting some investor capital into this part of the market, with investors still able to negatively gear new dwellings and retain the 50% CGT discount. Investor lending for new homes increased 7% quarter-on-quarter nationally, although the uplift was uneven. Queensland recorded the strongest increase, with investor lending for new build homes rising 50% over the quarter to $523 million in loan commitments. Western Australia also recorded a 22% increase, with Brisbane and Perth continuing to attract investor interest after several years of strong capital value and rental growth.

WILL INVESTORS HELP OR HINDER HOUSING DELIVERY?

Investors are an important source of demand for new build housing, accounting for an average 34% share of total lending for new build purchases over the past two years, above the longer-run average of 30%. The share is notably higher in Queensland, where it reached 49% in the June quarter, and lower in Victoria at 26%, where higher holding costs have weighed on investor demand more broadly.

Investors tend to be more active in the apartment market, where yields are typically higher than for detached housing. Their role is particularly important in off-the-plan sales, where pre-sales are often needed to secure development finance and bring new supply to market. The closure of new SMSF structures for residential property purchases in August could therefore weigh most heavily on the off-the-plan market, where investor demand plays a critical role in project viability.

It is too early to draw firm conclusions from one quarter of lending data, but the shift is an interesting indicator to monitor. If investor capital continues to pivot towards new build product, and remains concentrated in certain markets, it is likely to influence where future supply is most able to come forward. In a weaker broader sales market, and recent developer failures highlighting ongoing delivery and financing risks, developers are likely to remain highly selective about where and what they build.

HOUSING SUPPLY REMAINS BELOW TARGET

Housing delivery has been trending lower over the past decade, with annual completions now 22% below their peak. Around 173,500 dwellings were completed in the 12 months to March 2026 - 27% short of the Housing Accord target. With housing completions remaining well below Accord targets, the location and type of investment capital flowing into new housing will become increasingly important in determining where future supply can be delivered.