Property prices may drop but it’s decades of policy failure, not the budget, to blame

For decades, Australia’s property market has been defined by relentless price rises, reinforcing the old adage that real estate investment is “as safe as houses”. There’s now a wrinkle in that wisdom. Data from the three weekends since Labor handed down its budget suggest investors are not competing as vigorously at auctions after being told they won’t be able to negatively gear newly bought established properties beyond mid-next year. Auction clearance rates have dropped, home prices in several of Australia’s capital cities have begun to fall , and some analysts now expect price declines of up to 10%. There are, of course, contributing factors to price movements and forecasts beyond the budget reforms, namely rising interest rates, stretched household budgets and a pessimistic global economic outlook. It’s a perfect storm, or alignment of stars, depending on whether you want prices to go down or up. Any drop in the property market would not, however, show there is a problem with the tax reforms; it would more accurately expose the policy failings of three decades that encouraged unchecked price growth and an affordability crunch. ‘Get a fair crack at auctions’ Labor’s capital gains discount and negative gearing changes are already prompting a shift in investor behaviour. Instead of relying on tax-enhanced speculation, investors are now compelled to evaluate established properties based on financial metrics, such as rental yield and growth prospects. …