Property investors have gone on strike, and who can blame them?

Australia's housing market reportedly fell by 0.4 per cent in June, the biggest monthly decline since December 2022. This was largely in response to Budget tax hikes on investor owners, which were imposed despite a litany of Albanese Government promises to keep the status quo.

Even "Blind Freddy" can now see that an even bigger fall is all but certain in July because of a rush of investor sales listings coupled with fewer buyers. Market talk now suggests total price falls of up to 10 per cent are possible in some major cities by the end of 2026. When one examines the new realities facing investors, it is no wonder that they are now either holding back on buying or dumping properties.

The average Sydney house price as at the 30 June 2026 was $1,265,608. If a property investor bought such a house, they would immediately be up for $51,143.50 in stamp duty plus more in legal expenses. (In contrast the transaction costs involved in buying shares are next to nothing). An investor would need well over 4 per cent in capital gain just to recoup these initial costs.

Now imagine actual price falls of up to 10 per cent by the end of the year instead of gains. Any prospective house buyer with a skerrick of common sense (even government subsidised first homebuyers) should postpone buying until after house prices stabilise!

The position of investors is even worse when other imposts are considered.

The rent produced by an average $1.265 million Sydney house is only a little over $1000 per week or about 4 per cent gross. After expenses the net return is generally only about 2 per cent. This is less than half the inflation rate and compares with a dividend yield of 3 to 4 per cent (fully franked) on many blue-chip Australian shares. To be blunt, Sydney houses have not been an attractive investment in recent times, and it was only the CGT and negative gearing concessions that made such residential investments viable and kept the rental market ticking along!

Property investors are also considered fair game for a litany of special charges including a 0.5% p.a. impost on their borrowings relative to owner-occupiers, high land taxes especially in Victoria and Queensland, higher (differential) rates in some council areas, rental laws stacked in favour of tenants and demands that landlords accept (often damage causing) pets. Landlords are also vulnerable to tenant behaviour owing to legal impediments to moving bad tenants on, and bonds that commonly are inadequate to cover damage and (sometimes months of) unpaid rent.

All the taxes on property contrast with (for example) superannuation, which is a huge tax shelter. The new tax regime for property has been instrumental in making property investments no longer attractive to investors.

So, what is likely to happen?

Property investors have had enough. Unless Albanese (like Keating with his 1985 reversal of negative gearing changes) does an about face (and soon), property investors will put their money into superannuation or shares, or even just spend their money or place it overseas. Investors are now net sellers in a falling market. For the moment, owner occupiers, including first home buyers, are still active. Less publicised, the banks are now tightening their lending criteria to allow for price drops.

For investors trying to sell, there are signs that the horse has already bolted. My prediction is that, as the market realises that prices are falling, investors will meet the market up to a point and then put selling on hold. Even owner-occupiers are going to become more cautious.

The rate of home construction is likely to be negatively affected by a weaker residential property market, while supply of rental accommodation can only decline. Given that rents are reaching the limits of affordability, increasing household size will partially counter a trend of rising rents resulting from a shortage of rentals. Governments and the community sector have neither the will nor the financial resources to replace private landlords in the rental market.

The reaction to the Budget has ignited anger about accumulated tax increases, which result in those in the top tax bracket (now including those earning only 50 per cent above average weekly earnings) paying 47 per cent at the margin in income tax. Just 15 per cent of Australians have an annual salary of $120,000 or more but these account for 68 per cent of the net income tax collected by the ATO. The top 3 per cent of earners pay 29 per cent of all net tax. Increasingly, a minority of hard workers are paying for an increasing number paying no net tax, and watch in disgust as their hard-earned money gets wasted on projects like the NDIS, Snowy 2, the white-elephantine Inland Rail etc.

Our federal politicians enjoy a lot of tax-free perks (travelling and other allowances, generous lowly taxed superannuation etc) and spend taxpayers money like there is no tomorrow. Meanwhile our hardest workers are taxed to the hilt.

Since the Budget, I have sensed increasing anger, especially amongst small business owners and those working long hours. The only thing saving the government from a big backlash in the polls is the extent of division in the Opposition, especially in the Liberal Party. This will not go on forever. I think further backflips by Labor are likely but the damage to confidence that has already happened will be hard to reverse.