Pre-Budget vs Post-Budget Breakdown

In this episode of the Follio Property Podcast, hosts Reece Beddall and Lachlan Delahunty deliver a data-led Pre-Budget vs. Post-Budget breakdown of the Australian property market. They unpack why property prices are falling while affordability hits record lows. They also examine the direct impact of May Budget policies, from negative gearing restrictions and tax changes to dropping first-home buyer numbers and rising negative equity risks. From builder insolvencies to worsening rental shortages, Reece and Lachlan expose what was promised versus what actually happened.

Key Takeaways & Market Insights

• • Policy-Driven Price Drops: May budget changes to negative gearing and capital gains tax discounts triggered 15% price falls in Sydney and Melbourne, putting over 50,000 Australians in negative equity.
  • Plummeting First-Home Buyer Demand: First-home buyer mortgage applications dropped 20% to 25% due to high cost-of-living pressures, interest rates and reduced borrowing power.
  • Investors Crowding Entry-Level Market: Restricting tax perks pushed investors into the $550k – $750k price range, directly competing with and pricing out first-home buyers.
  • Escalating Rental Shortages: National vacancy rates at 2.5% driven by low investor incentive pushed Western Australia rents up $22/week, with potential rent caps risking further supply loss.
  • Housing Supply Deficit: Government construction targets fall 120,000 houses behind annually as major builders go under, including one collapse owing $3.2 billion.
  • Voter Backlash Over Housing: Political dissatisfaction drove a major voting shift, including One Nation winning a WA seat previously held by Labor since 1989 with a primary vote jump to 40%.

Declining Property Valuations & Rising Negative Equity

The post-budget landscape has introduced severe headwinds for recent home buyers.

“Policy and politics in 2026 is arguably the most influential lever that is contributing to the state of the Australian property market.”

“The major markets, Sydney and Melbourne, are down 15% post-budget.”

“Policies in the May budget put well over 50,000 Australians in negative equity.”

“Negative equity is pretty simple, you owe more than what the property is worth. And all those people that purchased in Sydney and Melbourne in the first home buyer space, a majority of them between October last year when it was introduced up until the May budget, are in negative equity because of our government.” – Lachlan Delahunty – Follio Founder.

Shifting Buyer Demand Across Entry-Level Housing

Restricting negative gearing incentives on existing dwellings was intended to clear space for first-home buyers. Instead, it altered investor behavior.

“First home buyers’ applications are down roughly 20 to 25% with certain mortgage aggregators and banks down 20 to 25%.”

“Now with no negative gearing benefits for a lot of mum and dad investors… they’re buying those houses or units between $550k – $750k.”

“So they’ve literally just priced the first home buyer again out of the market.”

“All these new build areas on the outer fringes are getting flooded with investors. First home buyers go out there and get swarmed.” – Lachlan Delahunty.

Escalating Rental Shortages & Supply Failure 

A severe national housing deficit combined with rising builder insolvencies continues to put extreme pressure on renters. Policy measures aimed at constraining investors risk deepening supply shortages, driving up weekly rental rates and increasing housing instability.

“Rents will continue to rise. If you’ve got a cap, what will that do? Push renters out, and then you see people without a home. These are our most vulnerable. People that are renting don’t have the ability to afford a home and will be without a house, homelessness will increase.”

“National vacancy rate at 2.5%, you couldn’t pick a worse time to introduce it.”

“In the last week, you’ve seen one of the biggest companies in western Sydney, Butler Group, go under with a lot of debt, 3.2 billion. What sort of impact is that going to have across the market?” – Lachlan Delahunty.

Market Outlook & Predictions

• • Sydney and Melbourne will keep seeing flat performance and price dips as high living costs and tight borrowing limits hold buyers back.
  • Regional and affordable sub-markets will hold up stronger, drawing in buyers seeking lower entry prices.
  • A “wait-and-see” mood will dominate the market, leaving many buyers cautious and immobilised by news headlines.
  • Stress-tested buyers with cash flow have a brief opening to negotiate hard while general competition stays low.

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