EDITORIAL: The harsh reality of house prices is becoming clear

Back in July we ran a headline that said “Labor policy is experimenting with your home”.

We asked if it was too harsh to call Labor’s housing policy a punt? “Maybe. But it is clearly a leap of faith,” we argued.

To recap, under the guise of seeking “intergenerational equity” by reducing the number of investors in housing, the Budget delivered on May 12 made changes to capital gains tax and negative gearing policies with the aim of giving first-homebuyers a greater shot at entering the market.

In July Anthony Albanese took delight that “first-homebuyers would have rocked up to auctions and not be competing with investors who want to negatively gear their properties and have taxpayers backing in those investments,” he said.

His Cabinet was fond of referring to Treasury’s advice with the Budget: “The reduction in investor demand is expected to lead to a small and temporary slowing in house price growth, estimated to see prices grow by around 2 per cent less over a couple years relative to no tax policy change”.

So “house price growth”.

The emerging picture indicates that looks wildly problematic to say the least.

ANZ is expecting a 10.6 per cent price decline across Australia from the peak in 2026 to next year’s trough.

The Commonwealth Bank is predicting a 10 per cent capital city property price decline.

National Australia Bank is forecasting a 10 per cent decline in Sydney this year and a 9 per cent drop in Melbourne.

The Reserve Bank’s chief economist Sarah Hunter warned the housing market downturn could hamper the supply of new builds and could see rents rise.

Some residential projects, “at the margin, wouldn’t be so attractive, developers wouldn’t get so many projects off the ground,” she told a Senate hearing on Thursday.

“Less supply to the economy, less supply to the rental market and that will play through,” she said.

ANZ’s head of Australian economics Adam Boyton told the hearing the price fall would not help first-homebuyers to afford a house.

“Is housing affordability and that challenge solved by a 10 per cent decline in house prices? I certainly would not want to suggest . . . that that would solve that challenge,” he said.

Treasurer Jim Chalmers said the tax changes were only “one of a number of reasons” for the price falls, along with interest rate rises and “developments in the economy more broadly”.

On Friday Housing Minister Clare O’Neil stood by Treasury and urged people to go back and “have a look at the Budget papers”.

And Dr Chalmers put a firm time-frame on the leap of faith.

“That assumption Treasury made in the Budget is a two–year assumption,” he said.

So now it is just “an assumption”?

An interesting approach to major policy changes.

Dr Chalmers will need that assumption to come to pass before the 2028 election.

In talking of “two years” the Treasurer has effectively put a deadline on the accuracy of the policy expectation.

Even if the Budget changes are not the only factor behind house price falls, it will be the one homeowners will remember.

And the one for which he will be held accountable.

Responsibility for the editorial comment is taken by Editor-in-Chief Christopher Dore