The Australian housing market is currently facing significant pressures, with dwelling values declining in major cities. Over the past three months, Melbourne and Sydney have registered annualised declines of approximately 10 per cent and 12 per cent, respectively. Nationally, dwelling prices fell at a 5.3 per cent annualised pace over the same period.
Contributing to these market dynamics are recent government policy decisions. The Albanese government has introduced changes including new capital gains tax rates on investment properties, a ban on negative gearing for established homes, and an unprecedented 30 per cent tax on family trusts, impacting the investment landscape for property owners.
Concurrently, the Reserve Bank of Australia (RBA) reversed previous rate cuts, raising the cash rate from 3.6 per cent to 4.35 per cent. This tightening was largely influenced by government spending and a substantial immigration intake, which have contributed to excess demand and exacerbated cost-of-living pressures. The federal budget’s headline deficit is forecast at $64 billion this year, continuing to inject stimulus into the economy.
While national values have softened, Brisbane and Perth previously saw strong appreciation, though this growth is now decelerating quickly. This trajectory raises concerns for first home buyers who might face negative equity. Despite bond markets suggesting the RBA’s hiking cycle is complete, some modelling implies additional rate rises are needed, projecting an optimal cash rate between 4.75 per cent and 5 per cent if inflation persists. The RBA’s prior decision not to align rates with global peers in 2022-2023 is noted as a past policy error.
