Australian home prices dip after tax reforms and rising rates

Fresh property analytics show Australia’s national dwelling values fell in June following federal budget measures that curtailed investor tax breaks, notably changes to negative gearing and the capital gains tax discount. The reforms have accelerated an existing downturn in major cities, with Sydney’s home values forecast to drop 1.2% and Melbourne’s by 0.9%, while the overall market is expected to decline about 0.3%.

Investors have been scaling back activity amid higher borrowing costs, and the slowdown is reflected in a lagging construction pipeline. Only 16,710 dwelling permits were issued in April, well short of the 20,000 needed to stay on track for the government’s target of 1.2 million new homes by mid‑2029. Rising material costs linked to the Middle‑East conflict and the prospect of further Reserve Bank rate hikes could further constrain supply.

Treasurer Jim Chalmers expects inflation to peak around 4.25% this financial year, after headline inflation fell to 4% in May. The Reserve Bank’s cash rate sits at 4.35%, with markets pricing roughly a 20% chance of an August hike and a 40% probability of a move before Christmas.