STEPHEN JOHNSON: Jim Chalmers and Reserve Bank are Punch and Judy over falling house prices

Jim Chalmers and the Reserve Bank are engaged in a tit-for-tat Punch and Judy show over who’s more culpable for this year’s housing market downturn.

A day after the RBA blamed the Budget for weighing down home prices, the Treasurer hit back saying the Reserve Bank was to blame too.

“My view is you shouldn’t judge the housing market by volatility over a period of a few months,” he told ABC Radio National on Wednesday.

“Often what happens with house prices is a consequence of a range of factors, including movements in interest rates.

“What we’re seeing in the housing market is a consequence of a whole range of factors – economic conditions, interest rates, policy changes – not any one factor on their own.”

As interest rates were left on hold at 4.35 per cent on Tuesday, the RBA released its quarterly statement on monetary policy noting Labor’s changes to negative gearing and capital gains tax concessions were partly responsible for the 1.6 per cent drop in national home prices since March and falling auction clearances rates.

“Conditions in the established housing market have softened by more than expected and housing prices have declined over recent months, reflecting the effects of cash rate increases and tax changes announced in the Federal Budget and after a long period of very strong growth,” the Reserve Bank said.

Australia’s captains of home lending put more of the blame on the Government than the RBA.

Westpac chief executive Anthony Miller told The Nightly Labor’s Budget tax changes had killed momentum in the housing market.

“You know, just given the changes to capital gains tax and and negative gearing, and so we’re seeing a slight drop in demand,” he said on Wednesday.

“And so, some of the recent increases in house prices, we’re not going to see that repeated, not for a while, and certainly not at the pace we’ve seen over the last three to five years.”

Commonwealth Bank CEO Matt Comyn blamed worsening affordability, the RBA’s three rate rises this year, the Iran war and “yes... taxation changes” for the housing market downturn as Australia’s biggest home lender noted mortgage applications had fallen by 15 per cent since May as investor demand plunged 28 per cent.

“Borrowing capacity impacted by higher interest rates and Federal Budget tax reform changes,” CBA’s full-year investor presentation said on Wednesday.

Westpac this week revealed an 18 per cent dive in owner-occupier loan applications and a 26 per cent plunge in equivalent investor mortgages.

Treasury modelling released with the Budget predicted Labor’s tax changes would see property price growth slow by two per cent, than would otherwise have been the case over the coming two years.

But since January, before the Reserve Bank hiked rates in February, March and May, Sydney property prices have fallen by 5.3 per cent while values in Melbourne have fallen by 5.1 per cent, Cotality data showed.

Since the May Budget, prices have fallen by 0.7 per cent in Brisbane and by 0.4 per cent in Adelaide and Perth from their recent peaks.

This was during a month when Labor announced it would restrict negative gearing for future purchases to brand new homes from July 2027, as the 50 per cent capital gains tax discount was replaced with indexation for inflation and a minimum 30 per cent tax.

During the past decade, Sydney house prices have fallen by double-digit figures, in an expensive market particularly sensitive to interest rate rises or banking regulator changes.

They plummeted by 13 per cent from 2017 to 2019 following an Australian Prudential Regulation Authority crackdown on interest-only loans and dropped by 12.4 per cent in 2022 and 2023 when the Reserve Bank raised interest rates 13 times.

But Perth’s biggest downturns occurred at different times, with its home prices plunging by 15.3 per cent from 2014 to 2019 following the mining and boom by 10.1 per cent in 2008 and 2009 during the global financial crisis.

Brisbane’s biggest slump in recent memory was a 9.9 per cent slump from 2010 to 2012 after the GFC.

Melbourne values plunged by 9.7 per cent from 2017 to 2019 and by 9.5 per cent between 1989 and 1992 during a period that included 18 per cent RBA interest rates and a double-digit unemployment after a recession.

If recent real estate history is any guide, the depth of property price falls is certainly uneven and very localised, with Labor’s Budget tax changes more likely to affect Sydney and Melbourne which are more sensitive to interest rates and taxes on investors.