In Australia, after decades of booming house prices and cries of injustice from those frustrated at the concentration of property wealth, the government and central bank are ruining the party. The capital gains tax, previously discounted by 50% if you held the house for more than a year, is being scrapped and replaced with inflation-adjusted property gains taxed at a minimum rate of 30%.
Negative gearing is also being reined in, restricted to new-builds from July 1, 2027, so investors who are bleeding cash on a rental every month can no longer lean on the tax office to soften the blow. And that’s all happening right when the capital gains they were banking on look a lot less certain.
To top it all off, the Reserve Bank of Australia (their central bank) has raised the cash rate three times this year (February, March and May). It’s now at 4.35%, nearly double ours, which sits at 2.5%.
What we’ve learned in New Zealand is that when you make it more expensive to own property through higher taxes and higher interest rates, you reduce housing demand and prices fall.
In Australia, it’s already showing signs of working: properties are taking longer to sell at auction, and Sydney and Melbourne are both showing early signs of softening prices.
Meanwhile, over here we’ve had five years of falling housing prices. After adjusting for inflation, a million dollars ‘parked’ in property in 2021 might buy only $600,000 worth of stuff today. Many households and businesses are struggling with rising costs and income insecurity, but instead of seeing lower interest rates, they seem to be rising.
The finger’s being pointed at the price of oil, rather than the 0.25% interest rate which I believe started this mess back in 2020. This all comes after our housing market has already taken several low blows:
Much of this has already been overturned, but we’re still unable to offset rental property losses against our personal income tax. The biggest hit by far, however, was brought on by the Reserve Bank swinging 180 degrees from a deeply “accommodative” monetary policy to genuinely restrictive, almost overnight.
All markets, including property markets, go through cycles, but what made the NZ housing crash unique was the fact it was engineered by the government and the central bank.
As Aussies watch their own market starting to wobble, that makes right now, in the depths of a Kiwi winter, a very interesting time to make some trans-Tasman comparisons. How hard would it be throw a few shrimps on the barbie and a few rentals on the market, then start again across the Ditch?
New Zealand must be looking quite appealing from an Australian’s perspective, especially if they want to skip out on a property “winter” which could last years. If an Aussie decided to move here permanently, it’s a pretty good deal, too.
With Sydney’s median house price sitting at roughly AUD $1.8m (about NZD $2.1m), an Aussie could sell up and buy two median-priced Auckland homes outright and still have change left over. There’s no stamp duty to buy property and no capital gains on any home, or on rentals owned for more than two years. Best of all, they’d be buying at 2016 prices.
So, standing in my office, facing west, I’m channelling Paul Hogan and Lara Bingle, and yelling my heart out. “Where the bloody hell are ya?”
Oh dear, someone’s calling security. Now, if only I could convince the locals.
Catch up on the debates that dominated the week by signing up to our Opinion newsletter – a weekly round-up of our best commentary.