Labor is in damage control over falling house prices. Why not take credit instead? | Tom McIlroy

Getting caught telling the truth can be dangerous in politics.

This week, as Labor struggled to explain a growing downturn in Australia’s property market and copped anger at falling house prices, assistant minister Matt Thistlethwaite was more frank than most of his colleagues about the contributing factors.

Thistlethwaite conceded on ABC TV that Labor’s budget changes to negative gearing and capital gains tax were “part of a suite of reasons” for a noticeable drop in house prices.

The comment came as the government felt the pressure, including from pointy data released by analytics firm Cotality on Tuesday showing prices had fallen in 95% of Australian suburbs in August.

Commonwealth Bank expects national dwelling prices to drop by as much as 9% in a larger and faster adjustment, expected to last until April next year. After that prices should begin to recover, rising by 2% over the course of 2027.

The housing minister, Clare O’Neil, and the treasurer, Jim Chalmers, were among ministers trying to explain that the drop in values was due to factors broader than just the budget, in part to limit political pain from voters angry that their biggest financial asset is worth less now than before the May budget.

A better approach might be taking credit for their policy doing what was intended.

Labor’s reforms were designed to free up space in the market for first-time buyers, including by making conditions less generous for cashed up investors, and the policy has the potential to do just that.

In the long term Chalmers, O’Neil and the prime minister, Anthony Albanese, are certain to take credit for improving intergenerational equity and dealing with a sustained housing crisis, so why not start now?

The answer might be based on just how big the falls turn out to be, and whether Labor pays a high price politically.

In its analysis of market conditions released on Tuesday, CBA said the prices of homes in all Australian capital cities except Darwin had gone down for the fifth month in a row. The 0.9% national drop was blamed on Donald Trump’s war in Iran, interest rate hikes and Labor’s tax reform package – described by the government on budget night as the most important and ambitious changes in decades.

Combined, these factors had taken some sting out of house prices and were “providing opportunities for first home buyers with the means to enter the market”.

Speaking on Wednesday, Chalmers stuck by Treasury budget forecasts suggesting the tax changes would reduce home price growth by only about 2%. That assumption, he stressed, was based on changes over the next couple of years and not just the three months or so since the budget. Economists are sceptical about the forecast.

In a press conference and a series of interviews, Chalmers noted softness existed in the housing market before the budget, and that adjustments and corrections in the market were not unusual. Besides, overwhelmingly owners are better off from sustained growth in recent years. Cotality data shows that median prices had increased by nearly 35% in five years, from $701,000 to $940,000 last month.

Chalmers also pointed out that for most people in Australia, buying a house is a long-term investment, suggesting ownership will easily outlast shorter-term ups and downs.

On Friday, O’Neil said interest rates were the main driver of house prices in Australia. Traders have already put the odds of another increase later this month at about 70%, suggesting more ammunition for the Coalition against Labor. Another increase could be on the cards for November.

As well as its policy for a drastic cut to tobacco excise, the Coalition is certain to focus on house prices when parliament resumes in Canberra on Monday. Explaining and contextualising the recent drop in home values will be tough going in the heat of question time, even if the shadow treasurer, Tim Wilson, has accused the government of “popping champagne corks” over falling values.

Labor should make the most of the new data released by realestate.com.au today. It finds that national affordability fell to a new low in the 2026 financial year ending 30 June, driven by elevated house prices, higher mortgage rates and interest rate hikes in February, March and May.

The conclusion is that action to improve affordability is badly needed. A median income household, earning $125,000 a year, could afford just 12% of homes sold last financial year, the report said, with low-income earners locked out of 98% of the market. Worse, an average income household saving 20% of income would need about six years to build a 20% deposit on a median-priced home.

The report is only more evidence that changes to negative gearing and the capital gains tax discount were badly needed, even if they are a modest first step to improving the intergenerational equation in the economy.

Labor might look to one of its reforming greats for some inspiration on the sales job.

The former prime minister Paul Keating offered a strong endorsement of the government’s reforms during an appearance at a Sydney Writers’ festival event this week. Speaking alongside his biographer, James Curran, Keating warned that timidity “is like a virus in the bloodstream” of politics and that Australia’s leaders had become too afraid of change.

“Making housing more affordable is a great thing to be doing,” Keating said, “and if we’ve lost 10 or 15% on house values, so what?”

Telling the truth about the contribution tax changes have made to house prices will give Labor the chance to claim credit for its policy making a difference, especially with voters getting into the market for the first time. The government should think about starting now.