The Albanese Government has taken a lot of flak for its May 12 Budget and, publicly, it’s been on the defensive.
KED But if the aim was to slam the brakes on property price growth, it has certainly succeeded.
Thanks to the tax changes, rate hikes, unemployment, global instability, fuel and living costs, Australia’s housing boom has all but stalled.
Inflation is 4.6 per cent, the jobless rate 4.5 per cent, variable mortgages over 6 per cent and lenders imposing tougher serviceability rules.
Sydney prices are down 0.9 per cent in the last quarter, Melbourne off by 1.5 per cent.
“Sentiment has fallen off a cliff,” Cotality Research Director Tim Lawless said pre-Budget.
As of May 25, the auction clearance rate had remained under the 60 per cent benchmark for six of the past eight weeks. Sydney’s rate was 56.9 per cent in the post-Budget week. Melbourne 60.2 per cent, Brisbane 45.7 per cent, Canberra 54.3 per cent, Perth just 38.9 per cent. Adelaide was the highest at 72 per cent but down from 75.7 per cent the week before.
The combined capital average was 58.2 per cent. For comparison, at the height of the property boom in March 2021, clearance rates were above 80 per cent.
Most economists agree the market is in a downturn, but has it “tanked” as some claim?
Louis Christopher, from SQM Research, said: “The national housing market has turned, and the downturn is now broadening.
“We now expect Sydney to fall by as much as 9 per cent and Melbourne by as much as 7 per cent for 2026.”
AMP chief economist Shane Oliver sees the overall property market easing throughout the year, but not by as much as SQM.
“Australian home price growth this year is likely to slow to around 3 per cent and could go negative over the year ahead,” he said.
Financial services company Morgan Stanley, on the other hand, tips a price slide of 5 per cent to 10 per cent by year’s end. It says a 10 per cent decline would be the sharpest in at least 40 years.
The biggest fall in recent history was 7.7 per cent during the recession of 1981-82.
“Proposed tax changes to capital gains and negative gearing fundamentally change the asset allocation decision for Australian households,” chief economist Chris Read said.
“This is particularly the case for housing: the previous model of high leverage, cash flow losses and large expected capital gains is meaningfully challenged.”
But first-home buyers won’t necessarily find any joy in the property downturn.
“A weaker housing market will drive a broader economic slowdown, with policy implications,” Morgan Stanley added.
A recent uptick in properties going to auction could suggest owners rushing to get the best prices before things get worse.
Or owners might simply decide not to sell at all.
That would not only reduce supply, but affect state government stamp duty revenue, even income for conveyancers and other property professionals.
Experts such as Ray White’s chief economist Nerida Conisbee call it the “willingness to transact”.
“Volumes fall when households or investors have a reason to wait, and uncertainty is often enough to slow the market,” she said.
“Buyers may pause while they work out whether the changes will affect prices, rents and investor demand.
“Sellers may delay if they are unsure how deep the future buyer pool will be.
“Investors have even clearer reasons to sit tight: existing investors may avoid selling if it means giving up grandfathered treatment, while new-build investors may hold longer if resale narrows the future investor buyer pool.”
Conisbee said the Budget also does little to encourage downsizing, leaving another source of established housing stock constrained.
“When policy change creates uncertainty and rewards waiting, fewer homes come to market, even if prices hold up,” she added.
Then there’s that knock-on effect of a slump in sales.
Everyone from renovators to removalists gets hurt… tradies, building inspectors, lawyers, valuers... and yes, conveyancers.
“A home sale is not just a transfer of ownership,” Conisbee said. “It is the start of a chain of economic activity.”
State governments depend on conveyance stamp duties for an average of around 20 per cent of total taxation revenue.
“When fewer properties transact, that revenue stream becomes more vulnerable,” she added.
At a personal level, five cash rate hikes by August would see the borrowing capacity of an average earner contract by close to $60,000.
That’s maybe 10 per cent of their buying budget… tending to negate any 10 per cent fall in prices.