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

Housing Minister Clare O'Neil asserted that the government's federal budget is not to blame if house prices fall by an anticipated 10%. She attributed potential market shifts primarily to interest rate fluctuations, not the budget's proposed tax reforms.

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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.

Analysts from Morgan Stanley and Westpac have forecast significant impacts on the housing market due to the budget's proposed changes to negative gearing and capital gains tax. Morgan Stanley anticipates lower returns and constrained borrowing capacity for investors, while Westpac predicts a substantial reduction in new investor activity and overall housing turnover. Westpac's "IQ" team warned of a potential near-term "air pocket" where prices could drop sharply amid uncertainty over tax changes and rising interest rates.

Auctions have reportedly slowed as buyers assess the government's proposal to end negative gearing for existing homes purchased after budget night and replace the 50% capital gains tax discount with one that only compensates for inflation. However, O'Neil downplayed the tax changes' impact, stating Treasury modeling shows only a "mild affordability impact."

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House prices in our country move. The biggest driver of them is what goes on with interest rates.

"House prices in our country move. The biggest driver of them is what goes on with interest rates," O'Neil said. She highlighted that the tax changes aim to help 75,000 rental households become homeowners and foster a fairer housing market. Treasury forecasts predict a slowdown in house price growth to about 2% in the short term, a forecast supported by the Grattan Institute and Commonwealth Bank. The government also anticipates its "build, build, build" initiative will put downward pressure on rents, projecting a modest lift in new dwelling construction and a net increase of about 30,000 homes over the decade due to a $2 billion injection into housing infrastructure.

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What I can absolutely tell you is we are building more homes through our policies. Treasury has looked at the entire $47 billion package, and said the home building aspect will build about 420,000 new homes over the decade, and we are dead serious about this.