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)
Taking those house price dynamics a step further, the young people who made the commitment to buy a house during the last couple of years could now slip into “negative equity”!! The intergenerational justification for the tax changes is not a strong one.
Your home is not an investment. If you’re selling your home, the new home would have also fallen by an average of 10%. So, technically, there’s no change or detriment to home owners. Investors, yes. But this was always the aim, to reduce the appeal of housing as investment stock, and return housing to what is should always be: a basic human right. A basic right that is affordable.
a good start, but the market needs to fall more.
a good start, but the market needs to fall more.
houses are primarily homes for people to live in, and need to be affordable for the majority, not just wealth creation tools for wealthy people ( including me )
Very good, should fall more I hope. The main advantage of buying a home should be security of tenure , Good luck if they go up, but do not whine if they go down
WJP
The reduction will play out over time and there are a number of unintended consequences that may not be seen initially – current owners may not sell into this market and retain the property, capital works on the family home will increase as it is still exempt from CGT, the buying power of first home owners has been reduced with interest rates and the cost of living ( not withstanding of the potential further increase in rates) and what is being neglected is that with construction costs increasing, new builds will also go up in cost negating any benefits of the price drop ( thanks Jimbo), reducing the sales in this space. Developers will go to higher margin product in inner ring locations rather than new builds. In short, a complete and utter shemozzle.
G’day Peter,
I agree with the other contributors that homes need to be treated primarily as a place to live that provides security and community, not an investment. Numerous studies confirm a strong link between home prices, housing costs, and human well-being.
I also note there was no mention of the 3 interest rate increases this year in your article. Can anyone seriously claim these rate increases have not impacted the market?
We should thank Jim and Michelle.
Australians, wake up.
You never had a property market.
You had a tax minimisation scheme dressed as a property market.
But it was never a true property market.
So cry me a river.
In provincial boring mediocre neighbourhoods, houses ended costing more than a condo in Miami. Give us a break.
Stop whinging. You lived in La La Land. And anyone who thought this would go on forever with the demographic changes was simply not paying attention.
I hope property goes down to a sensible level. It should drop about 40-50%. I hope it does.
Peter you are way wrong here only thinking of the investor and your big rich mates who have 10 mill to buy a house for family. Houses are and should always be equal opportunity to firstly put a roof over your head and bring up a family. Thats the problem with Australia it has always been a bbq topic engrained in the culture “so how many properties do you own”.
I have always maintained there should only be allowed 1 investment property apart from your primary residence, yes investors are needed for the rental market but the rents people pay now days would of easily paid a mortgage only 4 years ago. It needs a major correction and I hope it comes to level the playing field as currently the only big winners are the tax man,real estate agents & many greedy investors.
Nobody so far has mentioned those couples who have stretched their combined incomes to purchase their first home. These people will be ruined if one or both lose their jobs (highly likely under a private sector hating Labor government) not only will these people fall into a negative equity position the total number of potential buyers has now been reduced. We can’t all work for government with security of employment.
Headline – “Your home just got $100,000 cheaper”
But the “experts say your property could be worth less within the year”
Which is it?
Can Peter suggest that we can have more affordable housing without rices falling? That is just plain dumb!
Drop by just 10%, let’s hope it keeps on dropping so that those lazy investors that purchased an existing dwelling, did not contribute to the housing stock, milked the renters (after all rents need to make a return commensurate to the size of the investment!!), depreciated items that were included in the initial price and didn’t cost her a cent, then sold it and pocketed 75-80% of the gain to then outbid other speculators on already existing properties … and the vicious cycle is repeated (I know it can be done because I did it until I realised it was IMMORAL!).
Australians were offered an opportunity to stop this Ponzi scheme a decade ago but they were frightened by powerful forces and Scomo received an expected miracle, but miracles don’t happen so frequently and most are based on fraudulent claims.
Let’s thank Albo & Jim for their courage!!
A FEW THINGS FOR YOU TO THINK ABOUT :
“Your home is not an investment.” IT’S PROBABLY THE BEST INVESTMENT YOU MAKE !
DEFINITION : “An investment is the allocation of money, time, or resources with the expectation of generating future financial gain or value. Instead of spending money on immediate consumption, you commit it to assets…”
Ask anybody RENTING A DWELLING if they would rather OWN THAT DWELLING and be able to use the rent for other purposes ! That is THE VALUE of owning it ! The time , effort and resources is PAYING OFF for you ! The safety , convenience and pleasure are immense ! Sure , it entails continual ‘running costs’ to own and maintain , but when compared to the anxiety and rental you would pay otherwise , it’s a bargain.
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“return housing to what is should always be: a basic human right.” REALLY ? YOU MUST LIVE IN THE ” DELUSIONAL CANBERRA SWAMP” THEN because “Australian Capital Territory (ACT) is the only jurisdiction to legally recognize housing as a fundamental human right” !…but it is NOT explicitly guaranteed in the national constitution or federal legislation.”…HOWEVER , YOU STILL DO HAVE THE RIGHT TO WORK YOUR SOCKS-OFF AND BUY YOUR OWN HOUSE …….LIKE THE REST OF US HAVE DONE !!!
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“a good start, but the market needs to fall more.”
TWO THINGS :
[1.] I don’t mind if YOUR HOUSE falls $100,000-00 but I do mind if mine does
and the City Council RATES and other charges DON’T FALL accordingly !!!
[2.] If materials , wages , administration and planning and the other million-and-one annoying little charges KEEP INCREASING , and they will , they have recruited MORE ‘civil servants’ than ever , and HOUSE PRICES FALL……..who the heck is going to bother risking their capital , time and effort BUILDING HOUSES ? Nobody sane anyway !
Who wants to RISK having their house built by AN INSANE BUILDER ???
……Get used to it ! “COMING SOON TO YOUR NEIGHBOURHOOD” The slums of tomorrow.
We are short of houses now , builders are going broke , the work-force [ “tradies”] can earn more elsewhere [ mining !? ] , very few IMMIGRANTS are “tradies” and
YOU ARE ALL GOING TO PAY MORE TAX because “Air-Brain” Albo and “Snake Chalmers” can’t control their SPENDING ADDICTION !
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“Let’s thank Albo & Jim for their courage!! THANKS FOR THE HAPPY MEMORY !!!!
“In the classic British political comedy Yes Minister, when the Permanent Secretary Sir Humphrey Appleby tells the Minister that a choice was a “courageous decision,” it is actually a severe warning that the decision will likely result in political suicide.”
IN THIS CASE…………..THAT GIVES US ALL HOPE !
LET’S HOPE THAT THAT COMES TO FRUITION ………….AND SOON !