UBS expects house prices to fall up to 5% amid tax changes, rate hikes
Make us a preferred source
Make us a preferred source on Google
The news: UBS economists are expecting house prices to fall by up to 5% over the next year or so, as sentiment towards housing investment slumps following federal government plans to replace the 50% capital gains tax discount with an inflation indexation model and restrict negative gearing to new builds.
The context: UBS has downgraded its forecast for housing prices from “around flat” over the coming year between -3% to -5% amid declining sentiment towards housing investment and “weakness in timely auctions, implying prices are already falling”.
According to the latest Westpac–Melbourne Institute consumer sentiment survey, housing price expectations fell 15% in June compared to the previous month.
UBS Australia chief economist George Tharenou said in a research note this appears to be due “the RBA raising the cash rate by a cumulative 75 basis points across their last three meetings”, expectations the cash rate will stay higher for longer, and the Australian government “increasing taxes on housing (which was largely unexpected)”.
“Indeed, the share of consumers assessing the ‘Budget and taxation’ as ‘unfavourable’ was very high, at close to 70%,” the UBS note reads.
“Notably, house price expectations are now below their long-run average; but the level historically still implies dwelling prices over coming months could rise modestly, although we think sentiment could deteriorate further as actual prices fall.”
Bank of America Australia and New Zealand economist Nick Stenner expects Australian house prices to remain “broadly flat over 2026” in the face of “multiple headwinds”. Budget policies reducing investor demand, interest rate hikes and negative sentiment.
Stenner said in a research note that an 8% decline in Sydney and Melbourne house prices is expected to be offset by “moderating gains in Perth (12%), Brisbane (9%) and Adelaide (8%)”.
“The slowdown reflects higher mortgage rates weighing on borrowing capacity and demand, alongside Budget policies that dampen investor activity. These headwinds will likely be amplified by weaker sentiment and a softening economic backdrop,” the note reads.
“However, we expect a relatively short downturn, with housing momentum likely to turn in early 2027 as expectations of RBA easing build (we expect 25bp cuts in Aug and Nov ’27), driving a 2% rise in national prices over 2027.”
The sources: Bank of America research, UBS research
