Australia’s property earthquake aftershocks
The latest property data confirm that Australian national aggregate home prices declined by 0.3 per cent to 0.4 per cent in June 2026 – marking the third consecutive month of declines and pushing values roughly 0.9 per cent below their autumn peak.
The downturn is being felt most acutely by the major capital cities; over the June quarter, Sydney and Melbourne slumped by 2.9 per cent and 2.6 per cent respectively, while Adelaide and Brisbane have completely flattened out.
And it’s not just prices plunging. The price correction is mirrored by a dramatic collapse in auction clearance rates, which plummeted to a six-year low in late June, hovering below the 50 per cent threshold at a weighted national average of roughly 47 per cent to 48 per cent –levels not seen since the initial economic shocks of the pandemic in April 2020. Labor’s impact on property is as significant as a global pandemic.
With for-sale listings up more than 10 per cent from last year and buyer confidence thoroughly shot by the compounding effects of recent interest rate hikes and tax uncertainty, vendors are increasingly forced to withdraw properties or accept steep discounts.
The major property tax changes introduced in Labor’s May 2026 Federal Budget – specifically restricting negative gearing to new builds and replacing the 50 per cent Capital Gains Tax (CGT) discount with inflation indexation (both set to transition fully by July 2027) – alongside tighter Australian Taxation Office (ATO) rules for holiday homes, have fundamentally shifted the psychology of the Australian property market.
While the grandfathering of existing investments avoids immediate panic selling and therefore restricting the number of established homes available for purchase, the sudden evaporation of new investor activity (with new investor lending halving according to the Commonwealth Bank) has flattened national property prices.
The politics of property
To many, it is blindingly obvious these changes are less about housing affordability and more about short-term political survival amid failed financial management. By framing property investors as “hoarders” or “barons,” the government has utilised class-warfare rhetoric to distract from their own failures in infrastructure and supply.
The government campaigned on a promise of stability, only to pull the rug out from under families who invested in good faith. Viral tirades by Dave Hughes are doing a meaningful job of capturing the anger of the ordinary Aussie: someone who followed the rules, leveraged their income to build a self-sufficient retirement, and now finds their goals, if not their life savings, evaporated by a bureaucrat or socialist-leaning tax adviser who actually thinks a sensible next step is to impose an annual land tax on the family home.
The opposition and minor parties like One Nation have framed this as a profound betrayal of our democratic right to know what we are voting for in an election. I have a lot of sympathy for the view that by penalising the property-owning middle class, Labor is dismantling the primary vehicle for wealth creation that has sustained Australian households and the economy for generations. Meanwhile, the Greens, who technically got what they wanted, have signalled their contempt for the “pathetic tinkering,” and are mocking Labor for not going far enough!
Economic aftershocks
The Australian property market is a confidence game (in fact, all markets are). By signalling the government is willing to retroactively alter the rules of asset classes, they have effectively frozen the market. Why invest in Australian property when the tax rules are essentially subject to the whim of ideologues?
Labor claims these changes will force capital into new builds. But the construction industry has correctly pointed out that if you make the property market unattractive, you don’t get more houses; you have a dead market. Developers can’t build if the underlying demand is destroyed by tax uncertainty, meaning we’re likely headed for a period of constrained supply, precisely when we need the opposite.
Perhaps more importantly, as property values decline, the wealth effect that propped up discretionary spending, including retail, travel, and services, is evaporating. When Australians feel poorer, they stop spending. This isn’t just a property correction; it’s a potential catalyst for a broader consumption-led recession.
The wealth effect is a psychological and financial phenomenon. When house prices rise, owner-occupiers feel wealthier and spend more. When property values decline, they tighten their belts – even if their actual income hasn’t changed.
In fact, for every 10 per cent drop in housing wealth, economic models estimate a roughly 1 per cent to 1.5 per cent drop in aggregate household consumption. And that’s partly because many Australians use the built-up equity in their primary residence to fund renovations, buy cars, or seed small businesses. As property prices fall, borrowing capacities contract, cutting off an informal line of credit for the broader economy.
Should we be surprised then by the headlines announcing the collapse and liquidation of retail businesses? As paper wealth diminishes, consumer spending pivots away from hospitality, luxury travel, and new vehicles, forcing a broader slowdown. Prominent retail businesses in Australia that have recently collapsed, entered voluntary administration, or undergone major emergency restructuring include:
- Mosaic Brands Group
One of Australia’s largest fashion retail giants, Mosaic Brands – which operates household names like Millers, Rockmans, Noni B, Rivers, Katies, Autograph, and W.Lane – entered receivership. The group had been struggling with supply chain disruptions, legacy debts, and a steep drop-off in spending from its core demographic of senior and value-conscious shoppers.
- Stax & Geedup Co
Geedup, the popular western Sydney-founded streetwear online brand, entered liquidation citing a significant drop in sales, as did the cult premium activewear brand Stax, which was placed into receivership.
- Colette by Colette Hayman
The popular fast-fashion accessories and handbag chain entered voluntary administration for the second time in recent years. The business, which operated dozens of stores in prominent shopping centres across the country, failed to remain profitable as young consumers drastically cut back on discretionary impulse purchases.
- Godfreys
The iconic 93-year-old vacuum cleaner retailer officially went into administration and ultimately closed its entire brick-and-mortar network. The company simply could not compete with cheaper marketplace alternatives, combined with the crushing cost of maintaining large-format physical store leases.
- Marcs and David Lawrence (Webster Holdings)
These premium high-street fashion labels have faced severe structural pressure, undergoing aggressive store-footprint downsizing and restructuring under administration protocols, as mid-tier fashion apparel remains one of the hardest-hit segments in the retail downturn.
- Barbeques Galore
Dozens of stores were closed as the company fell into receivership amid a bifurcating market, leaving mid-priced brands in no man’s land.
Meanwhile, when the property market slows, the shockwaves are felt acutely in Australia’s largest employment sectors.
Construction and Trades
Construction accounts for roughly 9 per cent of total Australian employment. The budget deliberately designed these tax rules to channel capital away from established houses and into new builds. And while theory says that demand for residential construction workers, civil contractors, and high-density developers should remain relatively insulated, as investors pivot exclusively to new builds to claim negative gearing benefits, the problem is that if overall property prices fall too sharply, developers face funding constraints and pre-sale failures. A drop in broader market sentiment causes developers to delay major projects, risking layoffs for tradies, subcontractors, and suppliers.
Retail and manufacturing
Property downturns stifle the retail sector via two mechanisms. The first is what’s known as the ‘renovation and moving’ loop. When fewer people buy or sell houses, discretionary spending on furniture, whitegoods, hardware (e.g., Bunnings), and domestic appliances falls sharply, impacting retail jobs.
The second is simpler. Tradies spend big at the shops and if they’re services are being utilised less, they earn less and have less to spend.
Falling prices are not better for the young
Many would like to believe falling house prices will make it easier for young purchasers to enter the property market, but the reality is a falling property market rarely favours the young for several reasons:
First, and most obviously, if falling property prices trigger business collapses and even a recession, or if people are simply nervous about their jobs, they’re not going to take on the risk of a mortgage.
Secondly, one reason property prices are falling is that the cost of money has risen and lending rules have tightened. The recent string of Reserve Bank of Australia (RBA) interest rate hikes, combined with strict new Australian Prudential Regulation Authority (APRA) loan-to-income caps introduced in early 2026, means a young buyer’s borrowing capacity is shrinking faster than house prices are falling.
Banks assess a buyer’s ability to pay using a 3 per cent serviceability buffer on top of current high interest rates. If your maximum loan amount drops by 20 per cent due to tighter credit rules, a 5 per cent or 10 per cent drop in a house price still leaves you worse off in terms of what you can actually buy.
Third, because the government’s budget changes grandfather existing investment properties, mom-and-dad investors are heavily incentivised to hold on to their current properties rather than sell them. If they sell, they lose their old negative gearing perks and face a harsher Capital Gains Tax (CGT) regime under the new indexation rules on their next purchase. This means the exact type of entry-level stock young buyers want (older apartments, townhouses, and suburban starter homes) is drying up as investors stay put, keeping total market turnover incredibly low.
Fourthly, with new investors fleeing the established market, the pool of available rental properties is tightening, pushing weekly rents to record highs. For a young buyer trying to save a deposit, this creates a brutal cycle, where out-of-control rental costs chew up the disposable income they need to build a deposit, and even if the required deposit amount drops slightly alongside falling house prices, their ability to save that lump sum is paralysed by daily living costs.
Finally, buying in a declining market introduces psychological and technical hurdles. First-home buyers often panic about buying the ‘falling knife’ – purchasing a home today only to see it worth less next year.
Conclusion
Ultimately, the budget looks more like a desperate attempt to bridge a widening fiscal gap by dipping into the pockets of the middle class under the guise of ‘equality.’ Whether this leads to more affordable housing or just a more stagnant economy remains to be seen, but the current mood suggests the government has traded long-term economic stability for a fleeting moment of ‘fairness’ theatre amid the old bait-and-switch.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
