The federal government appears trapped in a state of denial regarding the impact its changes to negative gearing and capital gains tax are having on the property market. Instead of addressing the reality of falling house prices and rising rents, Labor MPs cling to budget projections that forecast a minimal impact on the housing sector. These projections are divorced from reality.
The government is already attempting to distance itself from the fallout by blaming Treasury modelling, but that political manoeuvring provides cold comfort to everyday Australians left to pay the price.
Existing homeowners now face losing a significant chunk of their wealth. Recent forecasts from ANZ indicate house prices will continue to drop in 2026, with a fall of 4.3 per cent predicted across the combined capital cities and 5.4 per cent in Canberra.
A substantial decline in house prices of more than 10 per cent threatens to spark a broader economic recession. When the value of a family's major asset goes backwards, consumer confidence plummets, dragging the wider economy down with it.
Renters are faring no better, facing a scarcity of available properties and soaring weekly costs. While the government confidently forecast that its tax changes would increase rents by a trivial $2 a week, the market tells a different story.
REA Group data shows rents have already increased in about 60 per cent of Greater Sydney suburbs. Furthermore, recent modelling from NAB and Ray White outlines a stark scenario where rents must surge by up to 30 per cent to compensate investors for the loss of tax concessions.
This figure echoes the devastating rental hikes recorded after the Hawke government's 1985 negative gearing changes, a policy disaster that was reversed two years later.
Rental vacancy rates remain tight, with Cotality research this week showing regional property markets stood at 1.9 per cent in July and the combined capitals were at 1.7 per cent. The country's tightest rental markets are in the regions, including 0.8 per cent in the NSW coastal centre of Forster-Tuncurry and 0.9 per cent in Warrnambool in Victoria.
The government's mantra is that falling house prices present opportunities for renters to finally become first home buyers. This optimistic view completely misses the mark because it ignores the fundamental issue of available stock.
Real estate agents are telling property owners not to sell unless absolutely necessary, sending market listings plummeting. While evidence shows prices at the lower end of the market are holding up more strongly than expensive properties, being cashed up and ready to buy means nothing if there are no homes available to purchase.
First home buyers remain priced out of the top tier, while owners of existing rental properties with grandfathered negative gearing have every financial incentive to hoard their assets. Furthermore, once built, new homes will not qualify for negative gearing for a second owner, severely restricting future market fluidity.
The real issue is the severe lack of housing supply, and the government has just made it significantly worse.
Building costs are at record highs, and securing approvals for anything larger than a dog kennel remains a frustrating administrative nightmare. Crucially, nobody wants to build a new home in a falling market when the finished product could quickly end up being worth less than the cost of construction.
Economics 101 says taxing a commodity more heavily has never led to an increase in its supply.
Rents will inevitably rise by much more than a few nominal dollars; that outcome is as certain as death and taxes.
