Australia Banks: Beyond the Budget Shock: A Quantitative Look at Slowing Housing Credit

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Australia Banks: Beyond the Budget Shock: A Quantitative Look at Slowing Housing Credit

Goldman Sachs Australia Banks

The structural forces underlying Australian housing credit

The resilience that defined the Australian property market in recent years has fractured,

with the past six months delivering a swift and definitive shift in momentum. The cooling

of the market has coincided with a period where housing credit growth accelerated to

7.5% — its strongest pace since mid-2022. A key divergence from historical cycles is the

driver of demand: rather than owner-occupiers, the recent market peak was fueled by a

sharp acceleration in investor credit, which reached a decade-high growth rate of over

10% p.a.

The housing market is currently navigating a complex array of changing dynamics and

high-impact news flow. The May-26 Federal Budget introduced significant taxation

reforms (see here for our first take on the budget and implications for our banks

coverage), including the removal of negative gearing for established homes and the

elimination of the 50% CGT discount. These landmark tax changes have been coupled

with three RBA rate rises in the first half of the year, and persistent cost-of-living

pressures, which have all combined to fundamentally alter the demand story for

property, in our view. The impact is already visible, with weekend auction clearance rates

across major capital cities falling below 60%, and the national average hovering just

below 50% over the past three weeks.

This shift in sentiment and policy has begun to weigh on property valuations across the

country. Property prices in Melbourne and Sydney have already retreated ~4% from

their respective peaks, while growth in other major capital cities has slowed. The recent