Budget won't be to blame if house prices fall, housing minister says

Lead

Housing Minister Clare O'Neil has rejected suggestions that the federal government's budget tax changes could be to blame if house prices fall sharply, as new analysis from Australia's largest lender suggests the impact may be double the official forecast.

Speaking ahead of the government's housing agenda, O'Neil said the tax changes—which include winding back negative gearing and altering the capital gains discount for established properties—would only have a "mild affordability impact" on prices.

"I think there's a bunch of economic models out there in the news … what I can tell you is the tax changes we are making in the budget are not the main driver of that," O'Neil said, according to ABC Australia. "House prices in our country move. The biggest driver of them is what goes on with interest rates."

Coverage Comparison

The story has been covered by two major outlets—ABC Australia and The Guardian—with notably different emphases. ABC's report focuses on O'Neil's defensive comments and the government's broader housing strategy, while The Guardian highlights new modeling from Commonwealth Bank that suggests the budget's effect on prices could be more than twice as large as Treasury estimates.

Both outlets report that analysts expect the property market is already slowing due to global uncertainty and rising interest rates, independent of the budget changes. The Guardian notes that a slowdown was "already under way before the budget," citing rising interest rates and global economic headwinds.

Key Claims

Diverging forecasts on price impact

The most significant point of disagreement is the projected impact of the tax changes on house prices. Treasury's official forecast, as reported by both ABC and The Guardian, estimates a short-term drag of about 2 per cent on price growth. However, Commonwealth Bank senior economists Trent Saunders and Ashwin Clarke have modeled a larger effect, predicting a 5 per cent weight on home prices—more than double the official figure, according to The Guardian's reporting.

This divergence is notable because Commonwealth Bank is Australia's largest lender, and its analysis reflects both market sentiment and lending conditions.

Morgan Stanley has gone further, with analysts reportedly expecting the changes could "reverse" home prices due to lower expected returns and constrained borrowing capacity for investors, as reported in ABC's coverage.

Westpac has also weighed in, forecasting the budget will "significantly affect" the housing market, with a third of new investor activity expected to fall off and total housing turnover expected to drop by a fifth, according to ABC. Westpac's "IQ" team anticipated dwelling prices to stall this year, with a near-term risk of an "air pocket" where prices drop sharply.

O'Neil's response

In response to these predictions, O'Neil stressed that Treasury's modelling shows only a "mild" impact, and she emphasized that the changes would deliver broader benefits, including helping 75,000 rental households into home ownership and creating "a fairer market for housing in this country forever," as reported by ABC.

The Grattan Institute and Commonwealth Bank have both supported Treasury's forecast of a 2 per cent slowdown, according to ABC's reporting, adding weight to the official estimates.

Perspectives

Government perspective

The government maintains that its tax changes are designed to improve housing affordability and fairness, with Treasury modelling suggesting a modest impact on prices. O'Neil argues that interest rates are the primary driver of house price movements, not the budget measures.

Market analyst perspective

Private sector analysts at Commonwealth Bank, Morgan Stanley, and Westpac offer a more cautionary view, suggesting the tax changes could have a sharper near-term impact on prices than government forecasts. Commonwealth Bank's modeling points to a 5 per cent drag, and Morgan Stanley sees potential for outright price reversals.

Economic context

The debate occurs against a backdrop of a slowing property market, with rising interest rates and global uncertainty already affecting buyer sentiment. Analysts expect the Reserve Bank to hike interest rates one more time in August, based on reporting from The Guardian, which could further pressure prices.

O'Neil also pointed to the government's efforts to boost housing supply as a factor that would place downward pressure on rents, with the minister telling Insiders the government intends to "build, build, build," as reported by ABC.

As the housing market absorbs these multiple pressures, the accuracy of competing forecasts will become clearer in coming months, but for now, the gap between official and private expectations remains a key point of contention.