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

Instead of relying on tax-enhanced speculation, investors must now look at established properties based on actual profitability – leaving space for first home buyers

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”.

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.

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.

The changes are reintroducing a level of responsible decision-making to a property market so often marked by speculative bidding.

Reports from recent auctions suggest this transition is already under way, with observers noting unfamiliar scenes where most of the buyers actually want to live in the home they are bidding on.

Last weekend, clearance rates – the percentage of properties successfully sold – across state capitals fell below 55%, the lowest since April 2020, with Sydney and Brisbane the weakest, according to Cotality data.

This indicates the market is cooling and that there is a standoff between buyers and sellers over what properties are worth.

Jim Chalmers noted on Monday that while there were a “number of factors at play” in the clearance rates, “if we are making it easier for first home buyers to get a fair crack at auctions, then that’s a good thing”.

The difficulty with reforms is that someone always loses when the status quo is upended.

Some first homeowners will have recently poure