More home building contracts are being cancelled across Australia as market confidence slumps in response to interest rate rises, new data shows.

And builders expect sales to slump further following tax and financial regulation changes that were announced as part of the Federal Budget.

The Housing Industry Association (HIA) has released the June monthly edition of its HIA New Home Sales report.

Based on a survey of the largest volume home builders across the five largest states, the report is a leading indicator of likely future levels of construction activity in the detached house segment of the market.

All up, it found that the number of sales contracts that were signed for the construction of a new home contracted by 4.6 percent in June.

This followed a sharp fall which occurred in May and saw monthly sales volumes slump to their second lowest level since February last year.

More concerning, however, was a surge of almost 50 percent in the rate of contract cancellations.

For the purposes of the HIA report, a cancellation occurs where a previously signed building contract is terminated before construction commences.

Historically, the cancellation rate has remained below 10 percent of monthly sales, with the exception of a 2018/19 credit squeeze and the outbreak of COVID.

In June, however, the cancellation rate surged from 9.8 percent to 14.8 percent.

The latest data comes as Australia has experienced a recovery in new home building activity over the past two and a half years.

This has mostly been driven by higher activity levels in Queensland, South Australia and Western Australia.

Whilst the recovery was initially focused on the detached housing, momentum strengthened across the multi-residential segment of the market (apartments, townhouses etc.) throughout 2025.

At the beginning of 2026, many commentators expected activity levels to strengthen further across both this year and 2027.

However, the market has been challenged across the first half of the year on account of three interest rate rises, the outbreak of the Iran War and tax and other changes in the Federal Budget.

As a result, leading indicators such as new home sales and building approvals have flatlined and forecasters are no longer expecting the previously anticipated strong increase in commencement numbers to materialise.

In its report, HIA cautioned against placing too much emphasis upon a single month of data.

Furthermore, it stressed that there are no signs of any structural downturn in new home building activity.

Indeed, it points out that key factors which have been supporting the recovery remain evident.

These include strong population growth, low unemployment and an ongoing shortage of homes.

However, HIA warns that the rise in cancellations may be an early warning sign of weakening market confidence and serves as a likely indicator that some consumers are choosing to delay or reconsider their decisions.

Whether this proves to be temporary or develops into a broader slowdown will become evident over coming months, HIA says.

Tax changes could mean worse to come

In its report, HIA says that June result was primarily driven by higher interest rates.

It warns that further pain could be felt over coming months as a result of tax and other financial regulatory changes which have been announced over recent months.

These include:

• restrictions on negative gearing and changes to capital gains tax arrangements that were announced in the May budget; and
• a further change that was announced last month that will ban self-managed superannuation funds (SMSFs) from entering into new limited recourse borrowing arrangements in order to purchase residential property.

According to the Government, the changes will help to free up more established homes for first-homebuyers and will help to unlock new housing supply by redirecting investor activity toward new building projects.

However, building industry associations such as HIA and others warn that the changes will have a negative effect by dissuading property investors – who currently finance around two in five new home builds.

In its report, HIA said that it is too soon for these changes to be reflected in the June data.

However, it cautions that their impact may be significant.

In relation to the SMSF changes alone, builders in the latest survey expect that around 2,415 existing home building contracts that were being financed through limited recourse borrowing arrangements will be cancelled.

This change in itself is likely to lead to fewer commencements of between 3.5 percent and 5 percent in detached housing and to have an even larger impact in multi-residential building, HIA says.

Overall, meanwhile, more than 80 percent of survey respondents expect the number of new dwelling commencements to contract by at least five percent as a result of the changes.

Half of these builders expect commencements to fall by more than 10 percent.

Commenting on the report, HIA chief economist Tim Reardon said that the result reflects the growing impact of uncertainty on consumer confidence.

Reardon warns that the impact of the regulation changes will be significant.

“Sales of new homes declined for a second consecutive month, down by 4.6 per cent in June, as higher interest rates and policy uncertainty continue to weigh on consumer confidence,” Reardon said.

“The recent decline in sales reflects households becoming more cautious in response to higher borrowing costs and increased uncertainty, rather than a reduction in Australia’s need for homes.

“Despite the decline since the Federal Budget, sales in the June quarter remain 4.6 per cent higher compared to the previous year, while sales in the 2025/26 financial year remain 18.4 per cent higher compared to the previous year.

“Households continue to face the cumulative impact of three interest rate increases this year, while uncertainty surrounding recent housing policy changes has encouraged many prospective purchasers to delay, or cancel, major financial decisions.

“The consequence of recent policy announcements is that more than 80 per cent of builders expect commencements of new homes to fall by at least five per cent. Half of these builders expect commencements of new homes to fall by more than 10 per cent.

“The prohibition of borrowing to build a new home by some superannuation funds is estimated to cause a fall in detached commencements alone by around 3.5 per cent to 5 per cent. It’s likely that the adverse impact on apartments will be much larger.

“This month’s New Home Sales report highlights a 50 per cent jump in cancellations of new home sales contracts in June compared to the previous month. This is likely due to the impact of rising interest rates constraining households borrowing capacity and conditional finance being revoked. It remains too soon for the budget decisions to have this impact on cancellations.

“Builders anticipate that a further 2,500 contracts to build a new home that have been signed by Self-Managed Super Funds will be cancelled in coming months when the Budget legislation comes into effect. “Policies that constrain new home supply, such as the prohibition on SMSF’s borrowing to building new homes announced as part of the Budget, warrant a clear policy goal and analysis.

“The goal of building 1.2 million homes will become increasing unachievable if the government continues to restrict who can build or finance new homes.

“The coming months will show whether recent weakness in sales reflects a temporary loss of confidence or a more prolonged period of reduced investment among new home buyers.”

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