It was 'unfathomable' to New Zealanders that house prices would fall 30 per cent. Then it happened. PETER VAN ONSELEN on the grim signs Australia is following the same path

By PETER VAN ONSELEN, POLITICAL EDITOR, AUSTRALIA Published: 04:10, 16 August 2026 | Updated: 04:10, 16 August 2026 Labor's gamble to engineer cheaper housing is colliding with a property market that was already starting to weaken before the May Budget, but has deteriorated sharply ever since Treasurer Jim Chalmers announced the biggest property tax shake-up in decades. It raises an uncomfortable question: is Australia starting down the same path as New Zealand, where a similar attempt to curb property investors was followed by a prolonged housing slump - before the policy was dumped? The Reserve Bank says national property values have slipped 1.6 per cent from their March peak, a sharper deterioration than was forecast in May. Values fell 0.7 per cent nationally in July alone, the worst monthly result in nearly four years, with Sydney down 1.4 per cent and Melbourne 1.2 per cent. Mortgage applications have plunged across the major lenders since the Budget. CBA's applications fell 15 per cent, but investor applications plummeted a whopping 28 per cent. The disproportionate investor retreat suggests Labor's tax changes have intensified a broader rate-driven downturn. But there is one glaring difference between Australia and New Zealand that makes Labor's timing so dangerous. When Jacinda Ardern announced her tax package in March 2021, New Zealand's official cash rate was just 0.25 per cent and house prices continued rising before peaking late that year. Australia entered its experiment in a far weaker position. Labor unveiled its changes on May 12, six days after the RBA lifted the cash rate to 4.35 per cent, following three hikes in four months. Jacinda Ardern's government removed the ability of investors to deduct mortgage interest and imposed capital gains taxes on residential properties sold within 10 years of being purchased The tax changes were another brake on investor demand just as the Reserve Bank crushed borrowing capacity in a bid to rein in inflation. Negative gearing on residential investments will be restricted to qualifying new builds, while the 50 per cent capital gains tax discount will be replaced with inflation indexation and a minimum 30 per cent tax rate on real gains. ANZ went from forecasting a 2.8 per cent rise in capital city prices this year to a 4.3 per cent fall, followed by another 3.4 per cent decline next year. It cites rates, tax changes and global uncertainty, but the reversal shows how violently the outlook changed around the Budget. Labor argues fewer investors chasing established properties will help first home buyers, while retaining negative gearing for new builds will redirect money into additional supply. But not all economists agree. AMP chief economist Shane Oliver has warned the new build carve-out may not produce the response Labor expects. 'Policies that reduce investor interest in property overall will likely lead to less housing supply, not more,' he said. Dr Oliver also said retaining negative gearing for new homes could have the unintended consequence of making it harder for first-home buyers to compete for them. Treasury estimates the changes will produce 75,000 additional owner-occupiers over a decade and cause prices to grow about 2 per cent less than they otherwise would have. Anthony Albanese and Jim Chalmers' policies may not produce the results that they are hoping for  Early evidence casts doubt on that theory. A post-Budget NAB survey found the local investor share of new home sales fell from 19.9 per cent to 14.8 per cent, threatening a construction sector already in crisis. And Treasury's own modelling also forecasts 35,000 fewer homes being built overall in the wake of the policy changes. Renters could also become collateral damage. The vacancy rate is just 1.6 per cent and median advertised rent has reached $705 a week, yet Treasury estimates the changes will add less than $2 a week to median rents. It's hard to believe. Transferring a property from a landlord to an owner-occupier creates no new dwelling and can remove a home from the rental pool.  New Zealand showed us how quickly sweeping housing interventions can produce unintended consequences governments didn't anticipate. Ardern's government removed the ability of investors to deduct mortgage interest, as well as imposing capital gains taxes on residential properties sold within 10 years after being purchased. The changes landed alongside tighter lending restrictions as the cash rate rose from 0.25 per cent in October 2021 to 5.5 per cent by May 2023. House prices then fell about 15 per cent in nominal terms during the early downturn, and remained weak for years. Leith van Onselen, chief economist at MacroBusiness, argues that the inflation adjusted decline is far larger. Using Real Estate Institute of New Zealand data, he calculates that prices are now more than 30 per cent lower in real terms, after peaking more than four and a half years ago. In New Zealand, real house prices are now 30 per cent lower in real terms  'Back in 2021, Kiwis wouldn't have imagined that home values could crash. It would have been unfathomable,' he says. New Zealand isn't an entirely clean experiment proving investor tax changes alone crashed the market.  Official analysis found their effects couldn't be separated from rising rates, tighter loan-to-value limits and tougher consumer lending rules. Even so, the reforms didn't deliver the simple transfer to first-home buyers policymakers envisaged, despite the lower prices. The incoming National government quickly dismantled them, fully restoring mortgage interest deductibility and limiting capital gains taxes on residential properties to homes sold within two years of the purchase instead of 10. The question now is, what happens to the Australian market? The most consequential change may prove to be psychological. 'After nearly five years of declines, fear of missing out has well and truly turned into fear of overpaying,' Leith van Onselen says He warns that Australia could experience the same transformation we've seen overseas, if the present correction becomes deeper and more prolonged. 'Australians' belief that home prices always trend higher could shatter just as it did in New Zealand and Canada,' he said. However, in a sign of hope, economist Leith van Onselen says 'we could face a normal housing market' - after a potentially deep correction  'We could face a more normal housing market where, after the correction, prices rise moderately in concert with incomes. The signs are there, but it is too early to call.' That may ultimately produce a healthier market. Getting there through a sharp correction, however, would be costly for recent buyers, indebted households, developers and the wider economy. Lower prices don't automatically help first home buyers when higher rates have destroyed borrowing capacity. Labor needs prices to fall enough to claim an affordability victory, but not so much as to trigger a deeper correction. It needs investors to retreat from established homes while continuing to finance new ones, without worsening a rental shortage already in crisis. Australia isn't precisely repeating New Zealand's policy, but it is starting from a far more fragile position, and the policy similarities are evident. Announcing these changes - while interest rates are making borrowing harder, construction is stalling and rental stock is desperately short - is certainly a gamble. We don't know whether it will end in the kind of fallout seen across the ditch.  But Labor chose the worst possible moment to roll the dice, and the market is moving far faster than the reassuring assumptions in the Budget.