Four more things Australia can do to arrest house prices

Australia’s housing crisis is often thought to be blamed on tax incentives such as negative gearing and CGT relief, but deeper roots may lie in decades of financial deregulation that has turned housing into a credit-fueled asset class, writes Jemma Nott.

MAJOR PROGRESSIVE pundits have been working in unison for some time because the key to solving generational inequality is the capital gains tax (CGT) cut and the abolition of negative gearing.

It’s hard to escape the fact that CGT relief and negative gearing played a major role in creating Australia’s current housing crisis. A crisis in which the value of productive wealth is falling and static wealth, that is, housing wealth, is so overvalued that Australia ranks 93rd. Economic Complexity Indexbehind Uganda and Kenya.

A magnificent quarry where mining is important two thirds of export revenue While we only employ 2% of the workforce (and we can still account for more with the gas tax), working people rely heavily on housing wealth as their primary means of getting ahead. The best example of this is this 60% of Australia’s bank loans It is similarly directed towards residences. United States Before the 2008 housing market crash.

Expansion of group home ownership accelerating in Australia up to 70% in the 1970s and the fact that it currently hovers around 67% has meant that policies such as the removal of CGT relief or negative gearing have essentially been unelectable positions for decades.

But the reason progressives have been saying for nearly two decades that these policies should be scrapped is that they serve as an incentive to view housing as an investment vehicle. While the government has grandfathered this aid, many critics of the Left will say it does not go far enough.

It’s hard to look at data as personally reproducing similar data presented by groups like the one below. Australian Institute and I think the CGT discount is somewhat irrelevant here.

However, when you look a little closer, you will realize that the excuse for introducing CGT relief is actually a bit more complicated. The dominant narrative is this: Howard The government introduced the CGT cut and that’s when it all went wrong, so the latest changes to the Federal Budget simply represent a return to a better pre-Howard era. What this narrative ignores is the significant financial deregulation that occurred before Howard.

fraser Government introduced tender system issuing government bonds, which meant moving away from government control over monetary policy. Send Fraser, hawke And Keating It has spurred some important, fundamental changes towards the financialization of the housing market.

Nominally they Interest rate controls removedThis means banks can charge and pay customers whatever they want. Before this, banks could not compete for deposits by offering market interest rates, which limited their ability to grow their loan books. Once interest rates are freed, they can raise funds from wholesale markets and expand credit aggressively.

Later Hawke and Keating made the dollar flyThis meant removing interest rate caps on loans, removing lending controls and removing restrictions on deposits. The volatility of the dollar meant that Australian banks could now tap international capital markets for financing.

By 1985 foreign banks were able to enter the Australian market, significantly intensifying lending competition. Amount of capital in the banking sector in the period 1983-1988 Increased from 4.5 billion dollars to 20 billion dollarsThe number of bank groups operating in Australia increased from 15 to 34, and the number of commercial banks increased from 48 to 111. Loans increased 147% between 1983 and 1988.

By 1999 banks could borrow globally, lend without limits, and a decade of falling rates had doubled the amount households could borrow. The CGT reduction then made residential properties the obvious place to invest all that money.

What Labor did on Budget night was not insignificant: it moved to shut down three easy tax instruments in one night. As one red-hatted host bluntly points out, some still exist; self-managed super funds are one of these, but so are investments made through company structures. They did this knowing they would be unpopular.

But the left’s criticism is that none of this would have happened in the first place if it weren’t for the deregulation of finance. So if the federal and state governments, or Australian institutions, are seriously committed to curbing house prices, what else can they do from here?

Option 1

Restriction of mortgage securitization

When a bank writes a mortgage the old-fashioned way, it goes on the bank’s books. In case the debtor defaults, bank is losing money. So the bank has a strong reason to be careful to whom it lends and how much.

securitization this breaks the connection. The bank writes the mortgage, bundles it with thousands of others, and sells the package to investors – pension funds, offshore institutions, whoever. The bank takes a fee and moves on. The risk now belongs to someone else. So the bank’s incentive to be careful about the original loan is much weaker; volume becomes more profitable than caution.

This is what makes the supply of loans feel almost unlimited, especially with investor mortgages. A non-bank, no-deposit lender can write investor loans, package them, sell them, and more all day long. There is no natural brake.

The suggested fix is to simply say: If you write an investor mortgage, you should keep it. You can’t sell this. Now you’ll be exposed if things go wrong, so you’ll charge more, lend less, and scrutinize debtors more closely. Investment property loans are becoming more expensive and harder to obtain – not because of the Federal Reserve’s interest rate decision (RBA), but because lenders have skin in the game again.

Option 2

Debt-to-income (DTI) limits

The debt-to-income limit is a binding limit on how large a loan can be based on the borrower’s earnings. If your household income is $100,000 and there is a 6x cap, the maximum you can borrow is $600,000 – regardless of what the bank thinks you might be able to provide.

New Zealand I introduced exactly this In July 2024, the limit was set at 6 times income for owner-occupiers and 7 times income for investors. Australian Prudential Regulation Authority (APRA) followed this in November 2025 by announcing a DTI limit effective from February 2026. On the face of it, this seems like a meaningful intervention. In practice it is much softer than it looks.

The way APRA is structured, the cap is not a hard ceiling; what regulators call the “speed limit.” Banks are allowed to provide loans above the 6x threshold; they cannot do this for more than 20% of new mortgages.

There is also an important loophole: the DTI limit only applies to banks and other authorized deposit-taking institutions. Non-bank lenders (those who finance themselves by packaging and selling loans to investors rather than taking deposits) are a complete exception. These are definitely the lenders most oriented towards investor mortgages and subprime loans.

A real DTI policy would look like something tougher: a lower threshold (3.5 times the income cap in Ireland, 4.5 times in Canada), a tighter speed limit or a hard cap for investors without exception – along with closing non-bank loopholes. APRA has the power to carry out most of these without legislation.

Option 3

Loan-to-value ratio (LVR) base values

Reversing the government’s decision 5% minimum deposit plan Stricter minimum deposits for first home buyers and especially for investors. When home prices rise, real estate investors don’t just rely on earnings; they borrow against it. Let’s say someone bought an investment property for $600,000 and it’s now worth $800,000 on paper; they haven’t sold anything, but a bank will look at that $200,000 of new equity and let them lend it to finance a deposit on another property. Then this property increases, they get into debt against it, etc.

The cycle only works because you can enter with a small deposit in the first place. If you ask investors to put up 30 percent or 40 percent up front instead of 5 percent or 10 percent, two things happen: fewer people can start the cycle, and people who are already in the cycle can withdraw less money each time prices rise because their equity gains don’t go as far as a new purchase would require.

Option 4

State-based rent control

While there has been much debate about whether the budget will lead to an increase in rental prices, the average renter will happily tell you we are already approaching that. on an unbearable groundno matter what impact it has. As the number of Australians grows on the bread line As the Strait of Hormuz remains closed, we face a potentially worsening economic crisis, tenants need to act now, not a decade from now.

State governments need to muster the political will to respond to what is likely one of the worst economic crises in a generation, and rent caps are an obvious form of immediate economic relief.

But what makes some of these policy options with more teeth so difficult to achieve is that they aim to unwind the entire credit system that was established in the ’80s. What makes grandfathering CGT relief and negative gearing much simpler for some is that it slows the rise of prices while maintaining the asset class premium and does not rattle the entire asset class that has a stake in continued house price rises (67% of the country).