Plan to dump negative gearing could prolong the housing slump

Australia’s housing market in 2018 is vastly different from the boom times of two years ago when Labor first flagged it would wind back negative gearing.

Then east coast prices were surging, buyers were 10-deep at auctions and a building boom was in full flight.

Sydney’s housing prices may have surged 75 per cent and Melbourne nearly 60 per cent during the five-year boom that ended last year, but that has stopped. Sydney prices have fallen 6.1 per cent and Melbourne is down 3.4 per cent in the past 12 months.

Sentiment in the market is weak, and getting weaker.

In just 12 months, lending to investors dropped $2.6 billion, from 37 per cent of housing finance to 33 per cent in August.

First-home buyers are already returning as prices ease and are also being lured by state government grants.

Cutting tax breaks to housing — though Labor’s policy applies only to new builds — would hit already flimsy confidence in the overall market.

By the federal election due by May, it’s possible prices in Sydney and Melbourne will have fallen another 5 per cent.

Rather than making housing more affordable for first-time buyers, Labor’s policy may undermine confidence at the nadir of the market and prolong the downturn.