A former Treasury economist has warned that declining auction clearance rates are exacerbating challenges for first-time home buyers, the very group the government aims to assist with its housing policies.
Auction Clearance Rates Hit Pandemic-Era Lows
According to data from Cotality, the preliminary clearance rate for Australia's combined capital cities fell to 51.1 per cent over the weekend, marking the lowest level since the COVID-19 pandemic began. This decline comes despite federal initiatives like the First Home Guarantee, which allows eligible buyers to purchase a property with a deposit as low as five per cent, with the Commonwealth guaranteeing part of the loan.
MacroBusiness chief economist Leith van Onselen told Sky News that first-time buyers would be left frustrated as the auction market continues to weaken. “If you’re one of the recent first-home buyers who entered the market under the five per cent deposit scheme, I think you’re going to be pretty angry, because you’ve just seen three interest rate hikes,” Mr van Onselen said.
Impact of Policy Changes
Treasurer Jim Chalmers’ budget, handed down in May, included the abolition of negative gearing for future investors purchasing existing properties, with grandfathering for existing arrangements. The budget also replaced the 50 per cent capital gains tax discount with inflation-linked indexation and introduced a minimum 30 per cent tax rate on capital gains.
Mr van Onselen argued that these changes have further strained the market. “The government has just made changes to negative gearing and capital gains tax, which has smashed investor demand and shrunk borrowing capacity for investors,” he said. Budget papers estimate the tax changes could lead to 35,000 fewer homes being built due to reduced investor demand.
Regional Breakdown
Cotality’s data revealed that Melbourne’s clearance rate crumbled to 52.3 per cent, its lowest in five years, down 5.8 percentage points from the previous week. Sydney’s rate rose one percentage point to 52.9 per cent, but remains 5.2 percentage points lower than the same time last year.
Broader Economic Concerns
Mr van Onselen warned that Australians are facing the “biggest housing correction in 40 years.” He cited interest rates forecast to hit 15-year highs later this year, consumer sentiment tracking at around 50-year lows, and rising unemployment. “I think this is going to be the biggest house correction in four years,” he added.
Interest rates have been lifted three times since the beginning of the year, with economists anticipating at least one more hike, which would bring the cash rate above 4.35 per cent. The Reserve Bank of Australia held the rate at that level for almost a year-and-a-half to curb post-pandemic inflation.
The Opposition has vowed to repeal the changes to capital gains tax and negative gearing if elected in 2028.
