Shadow Treasurer Chris Bowen said the sharper-than-expected falls, triggered by a crackdown on investor loans to local and foreign buyers by the banking regulator meant the Coalition had lost the right to label the intervention.
“It used to be we’ve got a scalpel the other side have got a sledgehammer,” said Mr Bowen. “They don’t say that anymore. They can’t.”
Speaking from his office in his western Sydney electorate of McMahon, where prices have fallen by 9 per cent, Mr Bowen said when the market was rising he was regularly confronted by constituents worried about “the crazy prices” but few offered the same level of concern now that they had begun falling.
Mr Frydenberg said “there was definitley too much heat in the market” and that the regulator’s intervention had led to a decline in investors and a growth in owner-occupiers and first-home buyers. “That is welcome,” he said.
A panel of eight Sun-Herald and Sunday Age economists has forecast extra falls on top of the 11.5 per cent drop in Sydney and Melbourne in 2018. They expect Sydney to fall by another 8.7 per cent and Melbourne by 9.7 per cent this year.
Mr Frydenberg said he believed if Labor was elected in May then the threat of housing to the broader economy would increase.
“I’m worried that if the Labor Party get their chance to abolish negative gearing as we know it and increase capital gains tax by 50 per cent, then that will drive housing prices down with a spillover into the real economy and household consumption,” he said.
Labor plans to limit negative gearing to new properties while grandfathering those already in the market.
The Treasurer said he would target Labor seats with a high proportion of renters as part of a campaign that will claim rents will rise as investors leave.
Mr Bowen dismissed Mr Frydenberg’s claims as “shrill, ridiculous, scaremongering”.
“If there are fewer landlords that means there are more owner-occupiers by definition. A new owner occupier is almost by definition a former renter.”
“Josh Frydenberg wants us to believe that house prices go down and rents go up? In what universe does that happen?
“The government has put a lot of energy into scare campaigns. I will invite others to judge how successful it has been in light of the political circumstances we are facing.”
The Coalition trails Labor 46-54 on two-party preferred terms according to the most-recent Newspoll.
Pressed on a start date for negative gearing changes, Mr Bowen pointed to the one-year lead time between the election and the policy’s start date. A delay in the change could punch a multibillion-dollar hole in Labor’s budget.
He said the state of the housing market was not as significant as a range of Parliamentary processes, cycles and the need for draft legislation.
“It is not something that has to come into force immediately if a Labor government is elected,” he said. “We will do it sensibly.”
Mr Frydenberg said the timing of the policy was dangerous in a falling market.
“This is a bad policy and it should not be adopted any time. But it is particularly egregious of labor to pretend that it works in both a falling housing market and a rising housing market. It’s illogical,” he said.
“This argument of envy that this is all about targeting people with 10 different houses is frankly BS. What he is doing is he is targeting teachers and emergency personnel who have put a bit aside each month so they can create a nest egg.”
Mr Bowen said fewer investors meant the time was right for change. “It means you can do it more smoothly.”
Both backed a generous immigration program as the foundation of a strong economy, despite pressure on infrastructure leading to calls for a cut in the permanent intake from 190,000 to 160,000.
“I strongly support a robust, generous immigration program. I think it builds strength and diversity as a nation,” said Mr Frydenberg.
Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.