Why house prices could plummet even further
Labor's plan to axe negative gearing could plunge the nation into a recession and strip a further 16 per cent from Melbourne property prices between 2020-2022.
The ALP policy would also drive up unemployment, increase the living costs of marginal families and bleed $2.3 billion from government coffers, new SQM Research modelling shows.
It comes as experts warned the economy was already on a knife-edge due to falling construction levels and Melbourne and Sydney's house price correction.
Labor's proposals include restricting negative gearing tax concessions to only new properties and halving capital gains tax discounts for property investors.
The plan was first introduced before the 2016 federal election when the market was still booming. National dwelling values have now fallen 6.8 per cent since peaking in 2017.
Implementing Labor's plan could cost the nation's homeowners a further 4-12 per cent over 2020-2022, according to the SQM modelling.
Melbourne prices were likely to fall 8-13 per cent in that period if there was a rate cut, or by 8-16 per cent if the RBA kept rates on hold.
Prices would increase 8-14 per cent if the negative gearing system remained unchanged and rates were cut.
Melbourne prices are expected to shed 6-9 per cent before the end of this year.
SQM founder Louis Christopher said Melbourne and Sydney were "by far the most overvalued" and would fare worst.
Labor's plan would push too many investors out of the market, bringing building projects to a standstill and having "a massive negative effect on our GDP and employment", he said.
The SQM modelling showed declining building activity, coupled with lower investor spending, would also drive the number property transactions down 12-15 per cent in the first year of reforms. This would slash $2.3 billion in stamp duty from the state's budget.
Falls in construction activity and rising population growth would lead to a national housing shortage by late-2020 and a 7-12 surge in capital city rents over the next two years.
Mr Christopher said young people and those on a lower income would be hardest hit.
Treasurer Josh Frydenberg said Victoria would be "one of the worst hit states by Labor's ill-conceived policy", with about a quarter of Australians who were negatively gearing properties based in the state, equating to 320,000 people.
Two-thirds of Aussies negatively gearing properties had a taxable incomes of less than $87,000, and three-quarters owned just one investment, Mr Frydenberg said: "(They're) not necessarily rich. It is a lose-lose policy."
Realestate.com.au chief economist Nerida Conisbee said Labor's plan failed to address rising rents, and help people "who are unable to scrape together a deposit".
Housing Industry Association economist Tim Reardon said introducing the reforms in a falling property market would be "risky".
"It may have made more sense during the boom, but things have changed," he said.
Opposition treasury spokesman Chris Bowen said the Treasury had disowned Liberal Party claims that Labor's reforms will reduce house prices.
"There's been a parade of shonky property reports claiming to 'model' Labor's reforms, but all fail to make reasonable policy assumptions or factor in Labor's actual policy settings," Mr Bowen said.
"Making ridiculous claims about massive property price falls or increases in rents resulting from Labor's reforms is both irresponsible and flies in the face of the evidence of the Australian Treasury and independent economists."
"To claim Labor's reforms will see massive increases in rents simply fails to acknowledge Labor's reforms full grandfather all existing property investments."