The housing market is shifting fast. Sydney and Melbourne are down, smaller capitals are losing steam, and investor appetite is cooling after budget changes to property tax. Industry analysts are sounding the alarm. But the story for builders is more nuanced than the headlines suggest.
Property prices flatlined in May 2026.
According to Cotality’s head of research Tim Lawless, Australia is now in a new phase of the cycle. Writing on LinkedIn, Lawless was direct: “Sales are down, listings are rising and buyers are gaining more leverage. We’re definitely in a new phase of the cycle where housing values are likely to weaken further.”
Sydney fell 0.9 per cent for the month. Melbourne dropped 0.8 per cent. Even the markets that had been defying gravity, Brisbane, Perth, and Adelaide, are now slowing.
PropTrack’s industry editor and analyst Benn Dorrington confirmed the picture in separate commentary, noting Australia’s median home price edged lower by 0.04 per cent to $908,000 in May, following a 0.1 per cent fall in April. Still 7.5 per cent higher than a year ago, but the direction has changed.
“We’re definitely in a new phase of the cycle where housing values are likely to weaken further.” Tim Lawless, Head of Research, Cotality
The Reserve Bank has now raised rates three times in 2026, unwinding the cuts from last year. Variable mortgage rates on new loans are tracking at their highest level in around 15 years.
Add to that the federal budget’s changes to property investor tax concessions, and the pressure on the market becomes clearer. Morgan Stanley has warned the budget’s removal of negative gearing for established homes and tougher capital gains rules could trigger a 10 per cent decline in home values. That would be the sharpest correction in at least 40 years.
For builders, the instinct might be to see this as bad news. The reality is more complicated.
The Investor Retreat Does Not Hit All Work Equally
The budget changes are specifically aimed at established homes. Investors buying existing properties will face a less favourable tax environment. That is a meaningful segment of buyer demand, but it is not the only segment.
New builds sit in a different position. First home buyers, who gain purchasing power as established prices soften, are still active. The mix of work shifts. It does not necessarily shrink.
Builders who understand which client segments drive their pipeline, and which are most exposed to investor sentiment, will be better placed to read what is coming.
The CGT Change Is Not as Simple as It Looks
Ray White’s chief economist Nerida Conisbee offered an interesting counterpoint on LinkedIn this week. While the shift from the 50 per cent capital gains tax discount to inflation indexation sounds tougher on investors, she argues it may not raise as much revenue as expected.
“Indexation taxes real gains, not nominal gains,” Conisbee explained. “That matters when inflation is high and house price growth is weak. If property prices grow slowly, or fall, while inflation remains elevated, the taxable gain can shrink significantly.”
“In some scenarios, the new system could raise less tax than the old 50 per cent discount.” Nerida Conisbee, Chief Economist, Ray White
Her conclusion: the CGT change only works as a strong revenue measure when property prices rise materially faster than inflation. In a softer housing market, that is far from guaranteed.
For builders, this matters because the policy’s real-world effect on investor behaviour may be less dramatic than the initial reaction suggests. Panic selling and investor exits may be overstated. Some will hold. Some will wait and see.
Buyers Are Still Transacting
REINSW CEO Thomas McGlynn added useful context on auction clearance data this week. Despite the noise around rate rises, CGT changes, and affordability pressure, buyers are still active.
“Our national clearance rate improved slightly this week as volumes increased,” McGlynn noted. “Buyers are asking more questions, weighing up more variables and becoming more deliberate in their decisions. Yet when confidence and value align, they’re still prepared to act.”
McGlynn described the market as “adapting rather than retreating.” That distinction matters for builders assessing forward demand. A slower market is not a dead market.
The Real Risk for Builders: Finance and Valuation at Completion
The more immediate risk for builders sits in contracted work, not new enquiries.
Clients who signed contracts during the 2024 and 2025 boom may now face a different financial environment at practical completion. Bank valuations on finished homes can come in below contract price when markets move. Finance conditions shift. Client confidence drops.
Builders who are sitting on lengthy build pipelines need to understand which contracts carry this exposure. Where settlements are 12 to 18 months away, the gap between what a client expected and what the market will return has widened.
This is not a prediction of widespread defaults. It is a reason to have those conversations early, not when keys are being handed over.
Rate Rises Are Not Going Away
Three RBA rate hikes in 2026, reversing last year’s cuts, have reset the borrowing environment. Dorrington’s commentary noted this directly: “The Reserve Bank has increased interest rates three times so far in 2026, wiping out last year’s rate cuts, as economists forecast even more rate hikes for this year.”
For builders running any form of finance, carrying construction loans, or working with clients on tight pre-approval margins, the arithmetic has changed. Deals that stacked up in late 2025 need to be reassessed.
New Build Versus Established: A Different Equation
It is worth separating what is happening in the established market from what is happening in the new build pipeline.
Price falls in Sydney and Melbourne are most pronounced in the established market, driven by rate sensitivity, investor exits, and affordability exhaustion. New residential construction is operating under different pressures: labour costs, approval timelines, and build costs remain elevated regardless of what established prices do.
Builders compete for clients who, in a softening market, are doing more comparison shopping. That pressure on margin is real. So is the pressure from clients asking whether now is the right time to build, given what they are reading in the news.
The answer to that question, for most clients, is that build costs do not fall when property prices do. If anything, the gap between build cost and resale value tightens. That is information builders can share with clients clearly, rather than letting uncertainty sit between them.
What This Cycle Means for Forward Planning
Lawless flagged that weaker conditions are expected through winter and into spring, as the combined headwinds of stretched affordability, higher rates, cost of living pressure, and federal budget implications flow through to demand.
That is a practical planning horizon for builders.
Not catastrophe. Not collapse. A cooling period with a clearer end point than the 2022 downturn, where rate rises came fast and the volume of contracted work created a long, painful unwind.
The builders who fared best in previous downturns were not the ones who predicted the bottom of the cycle. They were the ones who maintained cashflow discipline, kept their pipelines honest, and did not commit capacity they did not have.
That lesson has not changed.
The Good Builder Take
The property market is cooling. That is real. But the construction industry is not the established property market, and the two are not the same thing. Builders who understand which parts of this cycle affect their work, and which parts are noise, will make better decisions than those who read the headlines and panic. The fundamentals have not changed. Cashflow discipline. Pipeline honesty. Client communication. Those are the things that protect a building business when the market shifts. Not waiting for the cycle to turn.
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GENERAL INFORMATION DISCLAIMER: This article is intended for general informational purposes only. It does not constitute financial, legal, or professional advice. Builders and industry professionals should seek independent advice relevant to their specific circumstances.
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