The federal Budget was sold as good news for first home buyers. And maybe it is. But for the millions of Australians who already own a home, there was a number the Treasurer chose not to mention from the podium: $100,000. That is what experts now say your property could be worth less within the year. Here’s what Jim Chalmers left out.
This is the news Treasurer Jim Chalmers failed to mention on Budget night. Recall that the thrust of it was that he wanted to get more young people into the property market by taking away the tax incentives for investors to compete for properties.
It was an OK idea, given the Albanese government and many before it had done precious little to help increase the supply of homes while not pulling back on our immigration program. You don’t have to be a racist to know our immigration program is over-the-top, given our housing supply crisis. No, you only have to be an economist or someone with common sense!
This is what many Aussies would have appreciated to have been told on Budget night by the Treasurer: “I am making it harder for investors to buy properties, so younger people will be able to get into the house-owning game. However, the value of your home could fall, and expert forecasters think a 10% fall in a year is probable.”
He could have added: “There is no gain, without pain.”
Incidentally, when SQM Research told us a few weeks ago that house prices are set to fall by 10%, I told you and the 2GB audience that if someone owns a $1 million home, that would mean maybe a $100,000 price that you’d pay for the Treasurer’s property plan.
And today, the SMH has carried a story supporting my forecast. This is how they led the piece: “House prices in Sydney and Melbourne are likely to fall by up to $100,000 over the next year as the federal government’s overhaul of negative gearing and capital gains tax combine with interest rate settings to slow the property market.”
Here are the real estate revelations that go behind the SMH’s calculations:
- The country’s auction clearance rate is at a six-year low.
- The big four banks have all lowered their house price forecasts.
- The NAB is the most negative, tipping a 2% drop this year nationally, but Sydney slips 6% and Melbourne drops 7%.
- Given the cities’ respective median house prices, that translates into a $100,000 drop in value.
- We had property price falls between 2017–19 with Covid no help; 1989–91 due to a recession; and 2008–09 because of the GFC.
Importantly, average price changes can be deceptive. Between 2010 and 2012 prices were stable nationally but some capital cities saw house price falls and others had risen. And even more significantly, while Sydney might see a 6% drop in prices, some suburbs could fall 12%, others 5%, and some could even see a higher price.
Some economists will say that price corrections happen and it’s like a rebalancing of the market after a big price rise. House prices are up 50% since the pandemic, so a pullback makes historical sense, but the past corrections weren’t driven by a big Federal Government change in the tax drivers of property demand.
Jim Chalmers proposes big changes that will make property investors less interested in existing homes, and so many existing properties that an investor might have wanted will now be less attractive.
Recently, I learnt of a famous entrepreneur who paid over $10 million for a home for his daughter. He could easily have bought it in his name and then got her to pay rent so he could claim a tax deduction. And he could have even given her the money to pay the rent to him.
That kind of buying will disappear, along with the kind of buying by that 22% of households that currently own at least one investment property. And to be clear, it’s likely these properties will be permanently less valuable as every time they are sold you should expect nearly zero interest from property investors.
Meanwhile, when young people go to a new property auction or if they buy off the plan, property investors will be there competing, because with Jim’s changes, they get negative gearing and a 50% capital gains tax discount for new builds.
On existing properties, they can’t get negative gearing tax deductions and will not have access to the better 50% CGT discount. While they can use the new cost base indexation discount, this is less generous.
All this means prices for new properties will probably be higher than they would be if property investors could buy existing properties with the same tax incentives.
What I see happening because of the Budget changes is a drop in average prices across the country and then slower price increases as interest rates fall.
The Budget and Jim have made homeowners relatively less wealthy — but that was always going to be the consequence of changes meant to make properties more affordable for younger buyers.
The only thing is that Australians weren’t told this on Budget night.
(The SMH story is here: www.smh.com.au/politics/federal/house-price-fall-could-slice-100-000-from-your-home-s-value-20260622-p608yl.html)
