Six months down: What’s going to turn around the housing crash?

Australian house prices have now fallen for six consecutive months, with Cotality's Home Value Index dropping another 1.1 per cent in September, bringing the total decline to 5.2 per cent from March's peak. Brisbane fell hardest among the capitals at 1.5 per cent, Sydney followed at 1.4 per cent, and 97 per cent of suburbs nationally recorded declines over the past three months. Experts are now forecasting a peak-to-trough fall of between 10 and 15 per cent, with AMP chief economist Shane Oliver warning that falls of more than 15 per cent increase recession risk, and that a 20 per cent fall could tip Australia into recession.

The tax changes punish investors without producing more homes

The political logic of the government's tax changes is understandable. Negative gearing and the capital gains tax discount have long been easy targets, allowing investors to shelter income and crystallise gains at half the tax rate, advantages that are not as evenly distributed as their defenders suggest. Trimming them looks like fairness. The problem is that fairness and supply are different problems, and solving one does not solve the other.

Here is the mechanism that matters. Property investment follows returns. When you reduce the after-tax return on an investment, you reduce the number of investors willing to make it. In a well-functioning market with elastic supply, that would be fine — the gap would be filled by owner-occupiers, and prices would reflect genuine demand. In a market where construction is constrained by labour shortages, council approval delays, and building costs that have made a 37-storey tower as slow to complete as an 80-storey one built 25 years ago, reducing investor incentives without reducing those constraints just reduces the pipeline of new stock. The tax break gets cut. The apartment does not get built.

The tax break gets cut. The apartment does not get built.

Queensland developer Soheil Abedian, whose portfolio includes Q1 and the former Palazzo Versace, put the outcome bluntly: investors still retain tax advantages on new builds, meaning the reduced concessions are most likely to drive existing stock out of rental supply while new development, with its thinner margins and higher costs, stalls. He estimates 40 per cent of every new dwelling produced goes to investors. Remove the incentive and you may remove the dweller from the development altogether.

A price correction does not fix the supply gap — it widens it

Rate rises compound this. New home loan commitments have already fallen sharply, with investor lending pulling back most aggressively. The construction pipeline was always going to thin out in a rising-rate environment — developers cannot finance projects that do not pencil out, and projects stop pencilling out quickly when both borrowing costs and construction costs are elevated simultaneously. Abedian's warning that more builders will go under if prices fall another 10 to 15 per cent is not simply industry lobbying. When margins are already thin, a price correction at the sales end while costs remain sticky is a textbook insolvency trigger.

AMP chief economist Shane Oliver's numbers put the affordability gap in plain terms: the average wage earner can currently afford a $500,000 property. The median dwelling price is around $900,000. Four rate rises this year alone have stripped roughly $45,000 from what that same earner could afford in January. Falling prices close some of that gap, but they also reduce household wealth, constrain consumer spending, and, as we have covered previously, generate knock-on effects through stamp duty revenue, bank lending standards, and business confidence that reach well beyond anyone with a mortgage.

The deeper problem is that a falling market does not automatically produce more housing. Developers do not build into a price correction. Banks tighten construction lending when the collateral is declining. Tradespeople move to sectors with better near-term returns. The conditions that might, theoretically, produce a more affordable housing market are the same conditions that make it harder to produce more housing. And less housing production today means less supply when the correction ends and demand reasserts itself.

An argument can be made that concessions which disproportionately reward existing owners over new entrants were always hard to justify on equity grounds, regardless of their effect on prices. But that argument needs to be made honestly, on its own terms, rather than dressed as a supply fix when it is not one.

The correction will eventually run its course. Rates will stabilise, sentiment will recover, and the chronic undersupply that underpins Australian property markets will reassert its dominance. When it does, prices will rise again, because the thing that drives prices in a housing market is not tax settings or sentiment — it is the gap between the number of homes people want to live in and the number that exist. Until that gap closes, everything else is just weather.

Sources

ABC News — Australian house prices drop for sixth straight month and more falls expected

The Bearing — The housing bubble is leaking fast

The Bearing — A 10% property crash would ripple far beyond real estate — here's where the pain hits

The Bearing — Senate inquiry finds capital gains tax discount working as designed — but questions remain on who benefits most

Frequently Asked Questions

Why are Australian house prices still falling?
Four interest rate rises in 2026 have sharply reduced borrowing capacity, with the average wage earner now able to afford around $500,000 — well below the $900,000 median dwelling price. Reduced negative gearing and capital gains tax concessions have also pulled investors back from the market, compounding the demand-side pressure.

Will cutting negative gearing make housing more affordable?
Not in any durable way. Reducing investor tax concessions lowers demand and may bring prices down in the short term, but it does not address the supply constraints — labour shortages, council approval delays, and elevated construction costs — that limit how many homes get built. Fewer investor incentives means fewer apartments get financed and constructed, which worsens the underlying shortage.

How far could Australian house prices fall?
Forecasters are currently projecting a peak-to-trough decline of 10 to 15 per cent from the March 2026 peak. AMP chief economist Shane Oliver has warned that falls approaching 20 per cent would start to pose a recession risk.

What happens to housing supply during a price correction?
It typically contracts. Developers do not build into falling prices, banks tighten construction lending as collateral values decline, and tradespeople shift to sectors with better near-term returns. The result is that a correction which might theoretically improve affordability also suppresses the new supply needed to keep prices lower once demand returns.

Which Australian cities are falling fastest?
Brisbane recorded the steepest monthly decline among the capitals in September 2026, falling 1.5 per cent, followed by Sydney at 1.4 per cent. Nationally, 97 per cent of suburbs recorded price declines over the three months to September.