Australia’s house prices to fall by most in 40 years. By Robert Gotliebsen in The Australian.

Treasury Secretary Jenny Wilkinson’s plan to “change the distribution of home ownership” requires reducing the price of dwellings, led by Australia’s largest dwelling market, Sydney.

A large number of recent buyers could soon owe more on their dwelling than it is worth — so called negative equity.

Victoria:

In Melbourne, the state government version of Canberra’s “change the distribution of home ownership” program used property taxes to slash swelling values. It worked and achieved a 20 to 30 per cent slump in the value of dwellings priced between $1.5m and $10m.

There was a substantially smaller fall in property prices outside that range. Melburnians are now bracing for the impact of the Jim Chalmers/Wilkinson dose of “change the distribution of home ownership” taxes — a potential double dose.

Sydney:

Sydney’s largest apartment developer, Harry Triguboff, says “people are scared”. Triguboff said unit prices had already dropped 3 or 4 per cent this year.

But he now warns that the extent of the market slowdown is “understated”. Those people who are claiming prices will only drop 3 or 4 per cent are only saying that “because they are scared to go broke”. “They know very well prices will drop a lot more,” he says.

Australia:

Investment analysts MacroBusiness have been warning about high Australian consumer debt and high dwelling prices for some time, but after the budget they rang their warning bell much louder, stating that “we are bracing for the biggest housing correction in at least 40 years”. …

Impacts include:

A looming fall in dwelling transactions and prices will slash state government revenue via stamp duty. NSW Premier Chris Minns has made an early revenue decline estimate of $5bn. Victorian revenue will be devastated. …

Among the other secondary victims will be the 300,000 Australians who were encouraged by the government to use a government guarantee covering 15 per cent of the debt in order to borrow 95 per cent of peak dwelling prices. They had better not lose their jobs because they are in negative equity.

Politics:

There is no doubt Chalmers and Wilkinson are engaged in a massive social engineering project. Had they kept their attack to only one of the major measures, the impact would have been manageable.

But attacking capital gains, negative gearing and trusts in the same budget represented an unprecedented blow to parts of middle- and lower-income Australia.

We have a left-wing government and public service which together saw a unique opportunity to advance their combined agenda, given the division in opposition ranks.

Given the triple dose of untruths resulting from false election promises, they might be in for a nasty surprise — Pauline Hanson as prime minister.

Prediction about the future is hard, so don’t take the magnitude of the falls as gospel. In any case, they will be offset or disguised by growing inflation.

Yes, housing prices must fall. But the falls should be grandfathered in, perhaps leaving house prices flat while letting inflation do its work. Simply stopping (or reversing) mass migration from the third world would lower rents and house prices nicely.