It was a feasibility problem. The Federal Budget made both worse.
Changes to Negative Gearing and Capital Gains Tax were the last thing an already fragile housing sector needed. Political expediency became more important than sensible economics.
I wrote early about the likely impacts, being: 📉established house prices to drop, fast 📈rents spiking 📉new housing starts diminish
The subsequent three months have proven worse than I anticipated, compounded by persistent cost inflation and higher interest rates.
The downturn is now broad and on track for a significant pullback; rents are rising far faster than Commonwealth Treasury predicted; early indications are that housing approvals and starts will fall sharply.
Rapid house price growth is not healthy, but the answer is not crashing the market with uncertainty, especially against a backdrop of rising costs for new housing.
You can't solve a supply crisis by making new housing less feasible to build.
Only making new housing cheaper and easier to deliver can help solve the supply challenge.
Instead, the #feasibilitytrap is now deeper – more projects failing to stack up, delaying the supply Australia desperately needs.
Whilst headline prices might be lower, FHBs are retreating because they can borrow less and are spending more on rent and living costs, eroding their savings.
🤔My take: This is Australia's most significant self–inflicted policy mistake since the GFC.
⛔ New supply will slow even further – goodbye fake #housingaccord target ⛔ Construction activity will shrink, costing jobs & investment ⛔ More developers and builders will fail as projects stall ⛔ Foreign capital will exit Australia (as in Victoria already) in search of better opportunities ⛔ The negative wealth effect will reduce spending & remove the "bank of mum and dad" from lending pools
Let alone the impacts on overly property tax-reliant State budgets due to lower turnover/stamp duty and less land tax with lower valuations.
🏘️For years we were told by Clare O'Neil, Jim Chalmers and Anthony Albanese that the answer to Australia's #housingcrisis is more #housingsupply.
The problem is that supply doesn't magically appear. It only appears when projects stack up. And right now, settings are moving in the opposite direction.
Economic vandalism may sound harsh. But when policies reduce investment, reduce supply and increase rents during a housing crisis, what else should we call it?
PS. Thanks to those who reached out about the frenetic pace of my LinkedIn posting slowing; I needed a break from writing about the ongoing disasters wrought by our State and Federal political leaders.