Saying there’s an upside to falling house prices is sacrilege. But Labor needs to admit it

Politics and Australia’s real estate market are not the place to look for consistency.

In October last year, as the Albanese government expanded its 5 per cent deposit scheme for first-time buyers, the fear – from the Coalition, from property experts, from the media – was that it would drive up house prices.

“You’ve got everyone basically besides Treasury saying this is going to whack prices up, so people will be at a disadvantage,” Housing Minister Clare O’Neil was told by a Channel Seven interlocutor on the morning of October 1.

Fast forward to June 30, and Treasurer Jim Chalmers was asked by Channel Nine about the “fairness” of falling house prices.

“What about the 10 million people that own homes in Australia, because that would suggest this isn’t fair for them,” he was asked.

No matter in which direction house prices move – and they do move in either direction – everyone has an opinion on whether it’s “bad” or “good”. Facts, sadly, are few and far between.

This is where 30 to 40 years of Australian tax, banking, financial services, migration and urban planning policy has got this nation. Collectively, we’ve spent decades turning our shelter into an investment opportunity or tax opportunity.

National house values, as measured by Cotality, have fallen. Those trying to ascribe that fall solely to the government’s tax policy – which were only made public seven weeks ago – are delirious.

Melbourne’s property market has been subsiding since late last year. Sydney’s market slide began in February.

Across other markets, such as Perth and Brisbane, values are still climbing albeit at a slower rate.

That’s exactly what you would expect when the Reserve Bank increases interest rates by a collective 0.75 percentage points in two-and-a-half months. On an average NSW mortgage of $860,000, that rate increase is worth $400 in extra monthly repayments.

The fact that the NSW mortgage is now $860,000 (up $400,000 over the past decade) should be enough of a signal that the market has reached an affordability tipping point, which is another big issue in the price correction story.

Just hours before Cotality released its data, the Housing Industry Association reported that affordability has collapsed in all key markets, falling to its lowest level since the association started tracking it in 1994.

In Sydney and now Brisbane, to buy a typical home you need 2.1 times average income. In other words, a couple where each person earns the average income can’t afford a home.

The issue of our crazy house prices is one thing. Now with prices edging down, the concern has become “all” the people facing negative equity.

Earlier this year, the Reserve Bank – which keeps an eye on the risks to the nation’s banks – noted that about 0.4 per cent of all mortgage holders were in negative equity. Last month, governor Michele Bullock told a Senate hearing that “practically no-one is in negative equity”.

Before the pandemic, about 2 per cent of borrowers were in negative equity.

Nationally, median dwelling values had fallen by more than 4 per cent in the 12 months up to May 2019, with much larger falls in Sydney and Melbourne.

Sydney’s dwelling values fell by 15 per cent between mid-2017 and mid-2019 while in Melbourne they fell by more than 11 per cent.

But if you can’t remember the fears about tumbling prices or negative equity from that period, don’t worry. Apart from consternation about Perth’s property market (where prices had fallen by 25 per cent), there was not one question to the then government about negative equity.

It certainly wasn’t a concern of morning television or radio shock jocks masquerading as real estate experts.

The then head of NAB, Phil Chronican, said in 2019 he was relaxed about the level of negative equity given the jobless rate was “low”. Unemployment was half a percentage point higher and the proportion of the people in work lower at the time he made his comments than it is today.

The government cannot deny its tax changes aren’t affecting the property market. Reducing the incentive for investors to buy into the market is a feature of the budget – not a bug.

Fewer investors, of whom at least 80 per cent purchase existing housing stock, has to mean less demand. Demand ultimately pushes up prices.

But the government is scared to admit that a slowdown in prices, or even a short-term drop, would actually be an economic positive. The Reserve Bank certainly wouldn’t be displeased (given the way high house prices encourage people to use their properties as a bankcard).

Saying there is some upside to lower prices is effectively sacrilege at the altar of Australian property bulls.

But prices do fall, even without government intervention.

Apart from the 2017-2019 period (which clearly ended when the Reserve Bank started cutting interest rates), prices dropped in 2008, 2010, early 2020 and then through 2022.

Even with those corrections, Australia has still ended up with arguably the least affordable property market in the developed world.

That’s the true crisis facing this country.

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