Australia\u2019s housing market could be heading toward one of its most dramatic corrections in decades after the federal budget\u2019s negative gearing and capital gains tax overhaul.<\/p>\n
Finance experts have been weighing in all week following the Labor government\u2019s polarising strategy to hit investors with a generational shift to capital gains tax discounts.<\/p>\n
Analysts from investment bank Morgan Stanley have now made the incredible call that house prices could fall between five and 10 per cent as the tax changes dramatically alter the economics of property investment and slash borrowing power for new investors.<\/p>\n
\u201cProposed tax changes to capital gains and negative gearing announced in the federal budget last week fundamentally change the asset allocation decision for Australian households,\u201d Morgan Stanley chief economist Chris Read said.<\/p>\n
\u201cThis is particularly the case for housing: the previous model of high leverage, cash flow losses, and large expected capital gains is meaningfully challenged.\u201d<\/p>\n
The bank warned investors, who make up roughly one-third of marginal housing demand, may retreat from the established housing market in droves as returns weaken.<\/p>\n
Rather than rents simply rising to absorb the changes, Morgan Stanley expects housing prices to take the brunt of the hit.<\/p>\n
\u201cWe estimate that a 15-20 per cent decline would be required to fully restore investor economics,\u201d the bank said.<\/p>\n
It ultimately forecasts a smaller but still severe national correction of between 5 and 10 per cent, which it described as \u201cone of the largest price corrections over the past 40 years\u201d.<\/p>\n
The warning lands amid already weakening housing conditions, with softer auction clearance rates, elevated interest rates and broader global uncertainty tied to the Middle East conflict all weighing on sentiment.<\/p>\n
Morgan Stanley said the fallout could spread far beyond property itself.<\/p>\n
\u201cA weaker housing market will drive a broader economic slowdown, with policy implications,\u201d the bank concluded, warning of downside risks for banks, developers, consumer spending and digital real-estate businesses.<\/p>\n
The bank also suggested the housing slowdown could keep the Reserve Bank of Australia on hold through the rest of 2026 as weaker prices flow through to household spending and the labour market.<\/p>\n
The analysis adds to mounting backlash from property investors, business groups and sections of the technology sector following Labor\u2019s sweeping budget changes, which restrict negative gearing to new builds and impose tougher capital gains tax treatment on future investments.<\/p>\n
Flat for a year, then decline<\/p>\n
HSBC Chief Economist Paul Bloxham predicts home values will remain flat in 2026, followed by a national decline of 3 to 6 per cent next year. <\/p>\n
\u201cWe think house prices will fall outright in the second half of this year,\u201d Mr Bloxham told news.com.au.<\/p>\n
\u201cWe had quite a bit of positive momentum through the first part of the year, but we think we\u2019re going to lose that in the second half, and that will leave you with flat house prices this year. And then with that decline running into next year as well.\u201d <\/p>\n