Australian house prices may deliver little to no real capital growth over the next two decades, according to a new report from Macquarie that challenges assumptions about property as a wealth-building vehicle.
The analysis, titled A Brief History of Australian House Prices, argues the structural forces that drove the nation’s housing boom, including falling interest rates, financial deregulation, and tax incentives, have largely run their course.
“Real dwelling prices in Australia have increased approximately 160 per cent since 1980,” the report stated, according to Live Wire.
“However, for two-thirds of that period, prices trended sideways, with most of the gains occurring in two short bursts.”
Those bursts came between 2000 and 2003, following the introduction of the capital gains tax discount, and again from 2012 to 2022, driven partly by historically low interest rates.
The report suggests the recent federal budget changes to negative gearing and capital gains tax discounts could compound existing pressures on the market.
Macquarie analysts expect investor flows into established housing to slow materially – potentially by more than 50 per cent.
“In the near-term, we expect investor flows into established housing to slow materially,” the report states.
“While there may be some offset from increased flows into new housing, this will likely be limited by the capacity of the construction sector to deliver this stock.”
The analysis points to affordability as a critical constraint, noting that average dwelling prices have diverged significantly from household capacity to pay.
Rising female workforce participation boosted household incomes and borrowing power over recent decades, but with participation rates now approaching those of males, Macquarie argues those gains are unlikely to repeat.
The report also challenges perceptions that property prices only move upward.
Since 1980, national nominal house prices have experienced eight separate peak-to-trough declines.
In inflation-adjusted terms, the falls were more severe – Melbourne took nearly 11 years to surpass its 1989 peak in real terms, while Perth prices didn’t return to 2006 levels until 2024.
Macquarie has modelled scenarios ranging from a modest 5 per cent price correction to an unwinding similar to the 1980s, when prices fell approximately 9 per cent.
The investment house expects housing credit growth to contract from 7 per cent in the 2026 financial year to 3.6 per cent in 2027, with Commonwealth Bank and Westpac most exposed to the changes due to their mortgage lending concentration.
However, Macquarie notes grandfathering provisions for existing investors could limit stock coming to market, potentially creating a floor under prices even as new investor activity slows.
“If real prices once again move sideways for a decade or two – an outcome needed to ‘fix’ housing affordability – incremental revenue from capital gains tax will be zero,” Macquarie states.
“Enjoy the tax cut.”