Labor’s big spending agenda and controversial housing policies have driven rental prices five times higher than what the government predicted under new tax changes in the federal budget.
The Albanese government’s big spending and high-tax agenda has helped drive up rents and locked aspiring homeowners out of an increasingly unaffordable market.
The latest data has revealed rents have surged 12 per cent over the past year with interest rates rising three times over that period.
Since Labor’s “aspirational” May federal budget, designed to help housing affordability, rents have risen by as much as 6.3 per cent.
Economists have warned the government’s big spending agenda has pushed up inflation and interest rates, which has translated to higher rents.
The perfect storm has put further pressure on aspiring homeowners unable to save up for a deposit while rents keep continue to rise.
AMP chief economist Shane Oliver said high levels of government spending were “certainly” contributing to higher prices in the rental and property markets.
Mr Oliver told SkyNews.com.au that government spending acted alongside private demand and contributed to capacity constraints, putting upward pressure on prices.
“There’s certainly a correlation,” Mr Oliver said when asked whether government spending was pushing up interest rates and impacting rents.
“Government spending … acts in concert with private demand. There’s been more demand in the economy, which causes capacity constraints.
“There’s a shortage of homes generally, whether it’s homes to buy or homes to rent and to the extent that you’ve got high levels of government spending.
“It diverts resources away from the ability of private providers to meet demand and in this case home builders basically.”
The comments come as new rental data shows tenants face much sharper rental increases than the Albanese government forecast when it unveiled its budget.
Treasury modelling released alongside the budget suggested Labor’s tax reforms would increase rents by about $2 per week.
From March to June, average rental prices across combined capital cities increased by $10 to $700 a week – after Treasurer Jim Chalmers handed down his budget in May.
The federal budget included the scrapping of negative gearing for existing builds and implementing a minimum 30 per cent tax on capital gains.
Economists and industry figures have warned the real-world impact of those changes remains uncertain and will likely be significantly worse than the government predicted.
Sydney has been among the hardest-hit markets, with house rents climbing $50 a week over the quarter to a record $850, a 6.3 per cent increase.
Brisbane rents rose $20 weekly to $700, Melbourne rose $5 to $600, Canberra $10 to $710 and Adelaide increased $10 per week to $650.
Domain chief residential economist Nicola Powell said the acceleration was too sudden and concentrated to be explained by seasonal factors alone.
She said that “many landlords appear to have responded” to Labor’s housing taxes by “increasing asking rents where market conditions gave them the opportunity”.
The rental pressures have fuelled a political fight over whether Labor’s tax changes are responsible for worsening conditions.
Betashares chief economist David Bassanese said the impact of the budget changes was still emerging but argued the reforms would place upward pressure on rents.
“The reality of the budget is that it will put up rents,” Mr Bassanese said, arguing investors would seek higher rents to compensate for reduced tax benefits.
Independent economist Saul Eslake said the impact of the tax changes would take time to become clear but argued rents were ultimately determined by market conditions.
“Landlords charge what the markets will bear,” Mr Eslake said, pointing to rental vacancy rates as the best measure of market power.
He also questioned claims that landlords had passed on previous falls in interest rates to tenants through lower rents.
Liberal Senator James Paterson said the latest rental figures showed Treasury’s $2-a-week forecast was a fantasy.
“That was always a completely farcical prediction,” Senator Paterson told Sky News on Thursday.
He said Labor’s tax changes risked having “serious unintended consequences” and would not achieve the government’s stated goal of improving housing affordability.
Opposition Leader Angus Taylor has also used the rental crisis to attack Labor’s broader economic agenda.
“Under Labor, government has gotten bigger and Australians have gotten poorer, that is the brutal truth,” Mr Taylor said.
The Coalition argues government spending restraint, migration settings linked to housing supply, and tax cuts are needed to ease pressure on households.
The government has defended its housing policies, arguing Australia’s affordability crisis was the result of years of inadequate supply.
Housing Minister Clare O’Neil has made the bold claim that falling house prices were due to a normal market “correction”.
The comments come amid plunging auction clearance rates and warnings that the government’s negative gearing and capital gains tax changes will weigh on values.
“Look, I think the housing market is cyclical in Australia, a very uncontroversial comment,” Ms O’Neil said recently.
“We see periods of very significant house price growth, and then we see the market make a correction. And that’s what we’re seeing at the moment.”
Asked directly whether the country was in a market correction, Ms O’Neil said: “That’s correct. I don’t think that’s controversial at all.”
“We’ve just been through what has been extremely high house price growth in the period from Covid basically before Covid to today.
“House prices have gone up just in that time by more than 50 per cent. And we are seeing a correction on that.”
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