Housing crisis. Will Labor’s ‘great’ housing budget fix housing?

Labor says the Budget will do great things for our housing crisis, but that’s just Is the government spinning too much without much traction? Michael Pascoe he asks.

candy hit

A useful lesson about the Law of Unintended Consequences was hidden in the Federal Reserve’s 75-page statement on monetary policy last week, as housing equity was the main excuse for flouting electoral politics in Tuesday night’s budget.

“New loans to first home buyers have decreased in recent months, following a significant increase following the introduction of the Australian Government’s 5% Deposit Scheme in October 2025. First home buyer loan commitments in March were approximately 11% higher than September 2025, largely reflecting an increase in the average loan size (rather than the number of new loans).”

So the sugar hit from the smaller deposit scheme quickly wore off, with FHB loan numbers in March largely back to the level they were in September; Only when prices were higher were larger loans granted, allowing people to borrow more. Sellers thank you.

This should come as no surprise, as many economists have warned that Albanese wants to appear to be doing something at low cost.

First home buying plan leading to increase in house prices

Loans increased, values ​​increased

As soon as the policy started, the indicators appeared in statistics. The ABS reported that the number of new home first home buyer loans rose by 6.8% in the December quarter, but their value increased by 15.5%.

The Law of Unintended Consequences always operates, like Harris’ Law: Everything is capitalized. What former NSW Auditor-General Tony Harris meant was that policy changes would eventually be factored into prices, such as introducing a generous franking credit system and increasing the prices of large-franc dividend-paying shares to reflect this.

I don’t remember a budget this prescient.

Spinning, leaking, poking, winking and flying kites

Which makes me a little skeptical that it will be truly groundbreaking.

At this stage the policy is much clearer than the politics and has become more urgent with One Hanson’s success in the poll (not a typo):

• Housing is at the heart of our “cost of living” pain;
• Immigration has become a political lightning rod, largely due to the housing crisis;
• Young people are shown to suffer the most due to expensive housing;
• Even many of the (relatively) affluent Boomers feel their children and grandchildren are being oppressed;
• And most importantly, young voters now outnumber Boomers.

Hurry up, Jim, do something!

As already noted, Labor is being led by public opinion not to deliver on its election promises on negative gearing and capital gains tax relief, it is not leading to do so. There’s still a reserved Tony Albanese at the helm, taking very few risks.

RBA raises rate puts pressure on Chalmers’ tax evasion

But the question for all of us is; Will it work? Politically, will it be worth the campaign waged by the opposition?

More unintended consequences

Part of this inevitable campaign is the property investment lobby and the Liberal Party campaigning as if they were two separate entities. This is the claim that reducing huge tax incentives for homeownership would mean fewer homeowners, less housing, higher rents, and widespread hantavirus. Beware of unintended consequences!

Okay, maybe not the virus but everything else. It turns out that the Great Australian Dream is not about owning your own home, but about owning other people’s homes too. Menzies’ desire to create a nation of “little capitalists” through home ownership was transformed by Howard and Costello into wanting a nation of larger small capitalists, and it was claimed that if there was any change in this regard, society would collapse.

It’s too bad that a larger class of rich investors needs a larger class of poor renters.

The good news about reducing some of the distorted financial incentives for homeowners is that a real-time experiment was run here and it worked well for everyone except real estate speculators.

nicely summarized ($) with Saturday NewspaperIn the two-and-a-half years since Victoria increased property taxes on investors, house prices and rents have risen less in Victoria than in other states, more people have become FHB and vacancy rates have remained stable.

Whatever Jim Chalmers’ final formula is, with the adjustment of CGT for housing and popular acceptance of negative gearing, the opposition continues to argue that reducing the CGT deduction would mean the end of small business, wealth creation and innovation, and cause mass migration to New Zealand.

This is pretty much the same line put forward by fund managers and ticket cutters, Christopher Joye AFR and Geoff Wilson wherever he can.

Funny thing about tax reform.

Many people want a better system, but no one wants to pay anything for it.

Capital Gains Tax conundrum

Allegedly, Australia would be doomed if we reverted to the original CGT introduced by Paul Keating in 1985, because in some cases capital gains are taxed more lightly or not at all in some countries.

Part of a truly major tax reform package, Keating’s CGT deducted the inflation component from capital profits before taxing them. In 1999, Howard and Costello implemented the Ralph Review’s recommendation for a direct 50% reduction in capital profits.

The aim of this was to ignite the fire of investment that strengthens productivity and the economy. Instead, it mainly fueled housing speculation.

During the 14 years of Keating’s CGT, including a very severe recession, GDP growth averaged 3.6%. In the first 14 years of Howard’s version, GDP growth averaged 3.1% and has not spiked for most of the time since.

It’s a waste of time to speculate too much about the consequences of policy without knowing exactly what it will be, but I’m betting the world won’t move for us.

The bad news is that it is needed. The RBA’s best forecast is that housing investment growth of 3.8% this financial year will fall to just over 1% (i.e. the shortage will get worse given population growth of around 1.5%) and will shrink by 1.1% the following year (i.e. get progressively worse).

Trump’s war factor

The Commonwealth Bank’s economics team predicts Trump’s war will add around 4% to the cost of housebuilding next year, resulting in 15,000 fewer homes being built unless the impact of the war worsens.

If the Hormuz rush continues longer than the baseline scenario, this could mean a decrease of 25,000 housing units by the end of 2029.

Given that we need to buy an average of 240,000 homes a year to hit the legendary target of 1.2 million new homes, 15 or 25 thousand isn’t huge, but we’re at the stage where every little bit counts.

Just ask Jim Chalmers. Part of the pre-budget fun was watching the birds be fed so easily by the Finance Minister.

For example, he grabbed facile headlines pretending he was serious about housing by announcing on Saturday that the budget would include an extra $2 billion “to build critical infrastructure” that he thought would “support the construction of up to 65,000 homes across the country.”

Right. $2 Billion is over four years, meaning only $500 million a year will be distributed to the country’s local councils and utilities providers, so it won’t be spread very deeply.

What about those 65,000 additional homes? This is for the next decade, so its impact is really weak compared to the problem.

The truth is that the government continues to rely primarily on “the market” to deal with the problem that “the market” has created.

Until Labor embraces something like the very successful social housing construction it achieved during the GFC, it cannot be taken seriously in addressing the housing crisis. But there’s no sign of anything this bold.

There is also the problem that adverts portray the CGT and NG changes separately rather than as part of the broad, bold tax reform package that we actually need.

I hope I’m wrong. I’m a little skeptical though.

Watch the fees boogeyman – it’s housing, stupid