O’Neil defends tax changes amid falling FHB mortgage demand

When Sunrise host Natalie Barr asked whether she was concerned that the market appeared to be “tanking”, O’Neil rejected the premise outright.

“Well, I don’t agree with that language at all,” she said.

“The tax changes introduced by Labor were doing exactly what we want and that Australians had given the government a really clear message that they wanted the housing system to change.”

She said the government was prepared to make substantial policy adjustments rather than preserve existing housing-market settings.

“Our government is standing up and making some big shifts to build a fairer housing system for our country,” O’Neil said.

Demand indicators weaken

O’Neil’s comments come after new figures from credit reporting agency Equifax revealed FHB mortgage demand had fallen 20.1 per cent nationally in August 2026 compared with the same month a year earlier, the steepest year-on-year contraction recorded since 2022.

Total mortgage demand declined 14.1 per cent over the same period, according to the data, extending the mortgage downturn to a fifth consecutive month of annual declines.

The major banks have also reported double-digit declines in mortgage applications since the federal budget.

The Housing Industry Association also criticised the government on Tuesday, after finding new-home sales dropped 20 per cent over the past three months.

Those results have fuelled industry claims that a weaker lending environment, together with changed investor incentives, is reducing buyer demand and affecting the new-housing pipeline.

Yet O’Neil said the latest demand figures should not be treated as a complete assessment of the housing reforms, pointing instead to growth in residential approvals as evidence of improving supply-side conditions.

“We’ve got housing approvals in Australia up more than 8 per cent. That’s the third year in a row that housing approvals have lifted, you know, quite substantially. They’ve gone up 26 per cent since the National Housing Accord began,” she said.

O’Neil also disputed the suggestion that the tax overhaul alone explained the market slowdown, noting that borrowing conditions had tightened after three interest rate rises.

“The biggest driver of how many homes get built from year to year is actually what goes on with interest rates,” she said.

Government holds course

The minister said the government was seeing early signs that its policy settings would lift FHB participation and direct investment into new residential supply.

“We’ve got some really important indicators telling us that we’re going to see exactly what we want. And that is more first home buyers in the market and more new builds being supported by investor dollars, which is really where we want that money to go,” she said.

“I’m really respectful of the property industry who have come forward with these numbers, but I’m just telling you that they don’t paint the full picture.”

O’Neil said the government did not intend to retreat from reforms aimed at changing investor behaviour, conceding the policy shift would involve trade-offs.

“We’re not shy about the fact that we have made some big changes here to get young people the opportunity that they deserve,” she said and added that “something had to give”.

[Related: Budget and SMSF changes forecast to substantially reduce supply]