Ray White chief economist Nerida Conisbee said changes to negative gearing and capital gains tax in the federal budget had hit investors most sharply, although high rates also made it harder for them. The most severe falls are concentrated in the nation’s most affordable homes. New figures show national property prices have fallen 6.7 per cent from their March peak, equivalent to a $63,400 decline in the median Australian dwelling’s value, while some forecasters estimate the full peak-to-trough drop could be as much as 15 per cent.
The downturn is the fastest of any previous downturn over the past 40 years, according to Cotality research director Tim Lawless. Lawless said capital city values had plunged 8.1 per cent from their March peak, while regional prices were down 3.1 per cent since their April peak.
While Lawless noted that affordability and serviceability constraints and four interest rate hikes weighed on demand, he said the federal budget has added to the downside pressure since mid-May.
“The main driver of this change is the budget’s changes to negative gearing and capital gains tax and the subsequent withdrawal of investors,” Conisbee said. Her modelling, which divides the market into quartiles, found cheaper homes were outperforming expensive ones by an average of 1.3 percentage points over three months in January. By September, more expensive homes were outperforming by 0.18 percentage points.
Recent Australian Bureau of Statistics data showed investment lending fell 9 per cent over the June quarter, though those figures barely include post-budget activity. Buyer’s agent Cate Bakos said the portion of investor clients in her business had dropped from around 70 per cent to about 10 per cent. A recent Loan Market report showed appetite for new mortgage lending had fallen 24 per cent since January.
The collapse of Bathla Group, a developer of affordable homes in outer Sydney, underscores the pressure on the lower end. The conditions also raise the risk of negative equity for homeowners.
Property buyer Rasti Vaibhav, principal of buyer’s agency Get RARE Properties, said there had been a knee-jerk reaction to the budget changes to some extent. “I don’t think this trend will last for long,” Vaibhav said, adding that people were more likely to refocus how they approached the market. He said long-term investors’ main issue was that prices had become cheaper.
Analysis
Why This Matters
- The concentration of price falls in the most affordable segment is deepening the housing divide, threatening first-home buyers with negative equity even as prices drop, while doing little to improve access for those locked out of the market.
- The swiftness of the investor retreat suggests the budget's tax changes have had a far sharper impact than intended, altering the shape of the rental market and putting pressure on the construction sector.
Background
The federal budget delivered this year introduced sweeping changes to negative gearing and capital gains tax, explicitly aimed at cooling the overheated residential investment market. Combined with a series of interest rate rises and persistent cost-of-living pressures, the policy has triggered what analysts call a capital strike by mum and dad investors, who dominate the lower-price segments of the market.
Key Perspectives
Nerida Conisbee (Ray White chief economist): Blames the downturn directly on the budget's tax changes, pointing to modelling that shows the affordable end of the market flipping from the strongest performing segment to the weakest in a matter of months.
Tim Lawless (Cotality research director): Describes a confluence of headwinds, rate hikes, low confidence, cost-of-living pressures and the budget, combining to produce the fastest housing price decline in four decades.
Rasti Vaibhav (Get RARE Properties): Considers the investor retreat a temporary, knee-jerk reaction to the budget, predicting that lower prices and improved rental yields will eventually draw capital back into the sector.
What to Watch
- Whether the federal government intervenes with further policy adjustments as the speed of the decline tests housing market stability.
- The level of developer insolvencies in the affordable housing segment as price falls erode project viability.
- The pace at which rental yields rise and whether they are enough to reverse the investor capital strike.
Checked
12 claims in this story checked against 1 source: 11 supported.
Show each claim
- SupportedFederal budget tax changes drove investors from the market.Stockhead: “Sweeping tax changes in this year’s budget, which sent investors fleeing the residential market”
- SupportedThe downturn’s most severe falls are at the more affordable end of the market.Stockhead: “the most severe price falls kicking in at the bottom end of the market.”
- SupportedNational property prices fell 6.7% from their March peak.Stockhead: “New figures from Cotality show the national property price has dropped 6.7% from its March peak”
- SupportedThe fall is equivalent to a $63,400 decline in the median Australian dwelling’s value.Stockhead: “equivalent to a decline of $63,400 in the value of the median Australian dwelling at $884,855.”
- SupportedSome forecasters estimate the full peak-to-trough fall could reach 15%.Stockhead: “Some forecasters estimate the full peak-to-trough drop in housing prices could be as much as 15% before the downturn is over.”
- SupportedCotality research director Tim Lawless said this was the fastest downturn of any in the past 40 years.Stockhead: “Cotality research director Tim Lawless said the decline was the fastest of any previous downturn over the past 40 years .”
- SupportedConisbee said, “The main driver of this change is the budget’s changes to negative gearing and capital gains tax and the subsequent withdrawal of investors.”Stockhead: ““The main driver of this change is the budget’s changes to negative gearing and capital gains tax and the subsequent withdrawal of investors,” Conisbee said.”
- SupportedCapital city values fell 8.1% from their March peak.Stockhead: “Capital city values have plunged 8.1% from its March peak, he said”
- SupportedRegional prices fell 3.1% since their April peak.Stockhead: “with regional prices down 3.1% since its April peak.”
- SupportedVaibhav said, “I don’t think this trend will last for long.”Stockhead: ““I don’t think this trend will last for long. What is more likely to happen is that people will refocus how they approach the market,” Vaibhav said.”
- SupportedInvestment lending fell 9% over the June quarter, with the figures barely including post-budget activity.Stockhead: “Recent ABS data showed investment lending fell 9% over the June quarter, but those figures barely include post-budget activity.”
- Partly supportedThe share of Bakos’s investor clients fell from around 70% to about 10%.Stockhead: ““I had around 70 per cent of all activity coming from investors; it’s currently about 10 per cent,” she said.”