Auction clearance rates are stuck below 60% even after the federal government unveiled sweeping tax changes targeting property investors. Analysts warn the downturn now unfolding could be the sharpest housing correction in about 40 years.
Rate hikes, global uncertainty and Labor’s decision to overhaul investment property tax settings sit at the centre of the slowdown. The plan scraps the 50% capital gains tax discount and removes negative gearing for established dwellings, reshaping after-tax returns for investors. Early figures from data group Cotality show just 58.2% of homes taken to auction sold last week, only edging above the previous week’s 57.5% result. It is the sixth week out of eight where clearances remain south of 60%.
Market researchers say the shift in conditions is colliding with rapidly worsening mortgage stress across large parts of the country. Digital Finance Analytics reports more borrowers, including those in higher-value suburbs, are now struggling to meet repayments as interest costs rise. The firm argues surprise changes to negative gearing and capital gains tax rules will alter how investors balance risks and returns because running loss-making properties becomes harder to justify. Its latest stress mapping highlights middle-income outer suburban belts, long regarded as relatively stable, as emerging hotspots of financial strain.
The squeeze on mortgaged households adds another layer of pressure to a housing system already difficult for renters and new buyers to navigate. Bank economists now suggest national house prices are set for their steepest four-decade decline as living costs and policy uncertainty rise together. Researchers point to a “stacking effect” of higher rates, shrinking savings buffers and shifting tax incentives, which is eroding resilience across key family suburbs. That combination leaves Sydney and Melbourne particularly exposed as the multi-year correction gathers pace.
