Labor says the Budget will do wonderful things for our housing crisis, but is it just about government spinning hard without much traction? Michael Pascoe asks.
The sugar hit
With housing equity to be the key excuse for breaking election policies in Tuesday night’s budget, there was a salutary lesson about the Law of Unintended Consequences tucked away in the Reserve Bank’s 75-page statement on monetary policy last week
“New lending to first-home buyers has decreased over recent months, following a notable increase after the introduction of the Australian Government 5% Deposit Scheme in October 2025. First-home buyer loan commitments in March were around 11% higher than in September 2025, largely reflecting an increase in the average loan size (rather than the number of new loans).”
So the sugar hit of the smaller deposit scheme wore off quickly, FHB loan numbers in March were largely back to where they were in September, just bigger loans when prices are higher, and people are enabled to borrow more. Vendors say thank you.
That should be no surprise as plenty of economists were warning of it when Albanese wanted to be seen to be doing something at little cost.
Loans up, values up more
The indications were in the statistics as soon as the policy started. The ABS reported the number of new owner-occupier first home buyer loans rose by 6.8% in the December quarter, but their value jumped by 15.5%.
That Law of Unintended Consequences is always working, as is Harris’ Law: Everything is capitalised. What Tony Harris, former NSW Auditor General, meant was that policy changes end up being built into prices, e.g. introduce a generous franking credits system, and the price of shares paying fat franked dividends rises to reflect it.
I can’t remember a budget with as much anticipatory
spinning, leaking, nudging, winking and kite flying
as this one, which makes me a little sceptical about how genuinely groundbreaking it will prove to be.
At this stage, the politics are much clearer than the policy and made more urgent by the polling success of One Hanson (not a typo):
- Housing is at the centre of our “cost of living” pain;
- Immigration has become a political lightning rod largely because of our housing crisis;
- Young people are billed as the ones suffering most because of expensive housing;
- Even most (relatively) wealthy boomers think their children and grandchildren have been stiffed;
- And, crucially, there are now more young voters than boomers.
So quick, Jim, do something!
As previously suggested, Labor is being led by popular opinion to break its election promises on negative gearing and the capital gains tax discount, not leading the way. It’s still Timid Tony Albanese at the helm, risking little.
The question for us all, though, is, will it work? Politically, will it be worth whatever campaign the opposition mounts?
More unintended consequences
Part of that inevitable campaign is the one pushed by the real estate investment lobby and the Liberal Party, as if they are two separate entities. That’s the claim that reducing the very large tax incentives to become a landlord will mean fewer landlords, less housing, higher rents and rampant hantavirus. Beware unintended consequences!
OK, maybe not the virus, but all the rest. Turns out the Great Australian Dream isn’t to own your own home but to own other people’s as well. Menzies’ desire to create a nation of “little capitalists” through home ownership was perverted by Howard and Costello into wanting a nation of bigger little capitalists, and allegedly society will collapse if anything is changed about that.
Too bad that a bigger class of richer investors requires a bigger class of impoverished renters.
The good news about lessening some of the distortionary financial incentives for landlords is that there has been a real-time experiment conducted here, and it has worked out well for everyone except would-be real estate speculators.
Nicely summarised ($) by The Saturday Paper, in the two-and-a-half years since Victoria increased investors’ property taxes, Victorian home prices and rents have risen by less than the other states, more people have become FHBs, and vacancy rates have remained steady.
With adjusting CGT and negative gearing for housing being given the popular nod, subject to whatever Jim Chalmers’ final formula is, the opposition is stretching to claim reducing the CGT discount will be the end of small business, wealth creation and innovation and cause mass emigration to New Zealand.
That’s pretty much the line being pushed by fund managers and ticket clippers, Christopher Joye in the AFR and Geoff Wilson anywhere he can.
Funny thing about tax reform.
Plenty of people want a better system, but nobody wants to pay anything towards it.
The Capital Gains Tax conundrum
Allegedly, Australia is doomed if we return to the original CGT introduced by Paul Keating in 1985 because in some examples, capital gains are taxed more lightly or not at all in some countries.
Keating’s CGT, part of a genuinely major tax reform package, deducted the inflation component from capital profits before taxing them. In 1999, Howard and Costello implemented a Ralph Review recommendation to give a straight 50% discount of capital profits instead.
That was meant to ignite a fire of productivity and economy-enhancing investment. Instead, it mainly fuelled housing speculation.
Over the 14 years of Keating’s CGT, including a very serious recession, GDP growth averaged 3.6%. In the first 14 years of the Howard version, GDP growth averaged 3.1% and has been nothing flash most of the time since.
It’s a waste of time speculating too much about the ramifications without knowing what the exact policy will be, but I’m betting the earth won’t move for us.
The bad news is that it needs to. According to the RBA’s best guess, this financial year’s dwelling investment growth of 3.8% will slide to just over 1% (i.e. the shortage will worsen given population growth around 1.5% ) and shrink by 1.1% the following year (i.e. worser and worser).
The Trump war factor
The Commonwealth Bank’s economics team reckons just Trump’s war will add about 4% to the cost of building a dwelling over the coming year which in turn will result in 15,000 fewer homes being built, as long as the war’s impact doesn’t worsen.
Should the Hormuz hustle continue for longer than the base case, that could be 25,000 fewer dwellings by the end of 2029.
Given that we need to be averaging some 240,000 dwellings a year to make that mythical target of 1.2m new homes, 15 or 25K isn’t massive but we’re at the stage where every little bit counts.
Just ask Jim Chalmers. Part of the pre-Budget entertainment has been watching the chooks be fed so easily by the Treasurer.
For example, he picked up easy headlines pretending to be serious about housing on Saturday by announcing the Budget will contain an extra $2B “to build critical infrastructure” that he reckons “will support the construction of up to 65,000 homes across the country”.
Right. The $2B is over four years, so just $500m a year to be spread out over the nation’s local councils and utilities providers, so it won’t be spread very deeply.
And those 65,000 additional homes? That’s over the next decade, so the impact compared with the problem is thin indeed.
The reality is that the government continues to primarily rely on “the market” to deal with a problem created by “the market”.
It can’t be taken seriously on addressing the housing crisis until it adopts something like the very successful social housing build achieved by Labor during the GFC. But there’s no sign of anything as brave as that.
And then there’s the problem that the advertising paints the CGT and NG changes in isolation, not part of the broad, brave tax reform package we actually need.
I hope I’m wrong. Kinda doubt it though.
Michael Pascoe is an independent journalist and commentator with five decades of experience here and abroad in print, broadcast and online journalism. His book, The Summertime of Our Dreams, is published by Ultimo Press.