Chalmers defends housing reforms as market falls exceed Treasury predictions

Treasurer Jim Chalmers walked into a political firestorm on Wednesday, forced to defend the government's overhaul of negative gearing and capital gains tax rules as housing prices fell far harder than his own Treasury had predicted. The market downturn, he acknowledged, was partly a result of those reforms. But he insisted the decline was temporary, a natural correction that would resolve itself over time.

The numbers told a different story. Treasury had modeled that Labor's changes would slow dwelling price growth by 2 percent. Instead, Sydney prices dropped 6.7 percent in 2026 and Melbourne fell 6.3 percent. The Commonwealth Bank was forecasting declines as steep as 13 percent. The Reserve Bank, which had begun raising interest rates in February and again in March and May, was also part of the equation—but the gap between what the government had predicted and what was actually happening was too large to ignore.

Chalmers' defense rested on time horizons. The Treasury assumption, he said, was measured over years, not months. Housing prices had fallen on at least seven occasions over the past two decades, he noted, responding to interest rate movements and economic shifts. This was volatility, not catastrophe. He told ABC radio he was "not necessarily" surprised by the recent decline, framing housing as a long-term investment that should not be tracked month-to-month. Over the past five years, median house prices had climbed 34.8 percent, from $701,000 in mid-2021 to $940,000 in August 2026. The reforms were part of a broader effort to address the fact that rapid price growth had locked young people out of the market entirely.

Shadow Treasurer Tim Wilson was unsparing in his response. The government, he argued, had deliberately orchestrated a housing crash and was stoking inflation to collect more tax revenue. "Their active inflation agenda is focused on stoking revenue, stoking inflation, then taxing the inflation, then spending the inflation," Wilson said on ABC radio, claiming this was a pathway to extract more money from Australian households. He pointed to falling home values, rising first-home prices due to tax policy, and a collapse in market confidence—all by design, he insisted.

The damage was unevenly distributed. The most expensive properties were falling fastest, down 3.3 percent so far in 2026, while units and apartments had slipped only 1.8 percent. But the bottom quarter of the market—dominated by first-home buyers—had initially held up after the budget announcement before softening as demand weakened and affordability pressures mounted. First-home buyer loans had peaked in December 2025 and began falling when the Reserve Bank tightened policy in February. By the June quarter, 29,319 people took out a mortgage for the first time, a 2.9 percent drop from the March quarter. Investor loans fell 8.6 percent in the same period, reflecting a sharp pullback in investor activity since the tax changes were announced.

Former Prime Minister Paul Keating broke ranks with the Opposition, endorsing the boldness of Chalmers' reforms on Wednesday. Australian governments had become "afraid" of change, Keating said. Making housing more affordable was worth the cost. "If we've lost 10 or 15 per cent on house values, so what?" he asked.

But the government was falling further behind on its own targets. Building approvals fell 3.6 percent in July, with new house approvals down 4.2 percent. Queensland saw the steepest drop at 5.5 percent. The government had committed to 1.2 million new homes by the end of the decade, and the trajectory suggested it would miss that goal. On Thursday, the Select Committee on Intergenerational Housing Inequity was holding its final public hearing, with the Commonwealth Bank, Westpac, NAB, ANZ, and Reserve Bank assistant governor Sarah Hunter set to testify. A report was due by month's end. The political and economic reckoning over housing reform was far from over.