A leading economist has warned the Albanese government’s housing tax changes could expose recent first-home buyers to severe financial stress, amid forecasts that house prices could fall to their lowest level in a decade. 

The Federal Budget will limit negative gearing to newly built properties from July 2027, and replace the 50 per cent capital gains tax discount with a system that adjusts for inflation.

As a result, Morgan Stanley has warned that Australia's housing market could experience a national 10 per cent decline in values, the largest in at least 40 years.

MacroBusiness economist Leith Van Onselen said first-home buyers who entered the market recently with very small deposits under Labor's 5 per cent deposit scheme are now the group most exposed to rising interest rates and falling home prices.

Van Onselen warned that a 10 per cent decline from the national peak would wipe out the equity of many recent first home buyers (FHBs) who utilised the 5 per cent deposit scheme to enter the market.

'After enticing them into the market in late 2025, the Albanese government has now pulled the rug from under them with its negative gearing and capital gains tax changes, which promise to exacerbate the house price correction,' he said.

'While these changes to property investment taxes will help future FHBs by lowering prices and reducing competition from investors, they will drive recent FHBs who utilised the 5 per cent deposit scheme into negative equity.'

His comments come as data from Equifax shows that first-home buyers are now almost twice as likely as other borrowers to be 90 days behind on repayments.

Buyers who purchased earlier, with larger deposits, have seen 10 to 20 per cent price growth and are in a safer position.

'The challenge is for buyers who entered with only a 5 per cent deposit - if they are forced to sell, there is a strong chance the money they originally put into the property may no longer be there', Equifax Chief Solutions Officer Kevin James said.

Property market 'frozen' warns real estate veteran  

Real estate veteran Tom Panos said that, combined with three consecutive interest rate rises, the Budget changes had effectively frozen the property market.

'There is no question about it - agents all around Australia are telling me buyer inquiry has dropped significantly and fewer people are attending open inspections,' he said.

Data already shows a downward trend, with Australia's auction clearance rate sitting at about 51 per cent nationwide last weekend - the lowest level in six years.

Meanwhile, dwelling values fell 0.9 per cent in Sydney and 0.8 per cent in Melbourne during May, according to data from research agency Cotality.

'The current period reminds me of early COVID, when everything went quiet and people kept saying they would wait and see,' he said. 

'The Budget has created uncertainty,' Panos said.

'And uncertainty is bad for the country because people delay decisions, and that affects the entire economy.

'It affects renovators, removalists, conveyancers and banks.

'And when the market freezes, governments collect less stamp duty from property transactions, putting pressure on state budgets.'

'When interest rates go up, buyers have less money to spend, and that has been the biggest trigger,' he said.

'Then global instability added another layer, and now the Budget has added hesitancy on top of that.'

Renters likely to feel the biggest impact 

Panos warned that renters could ultimately bear the brunt of the changes.

'I think rents are going to rise, particularly in areas where people can least afford it,' he said.

'I've never seen a landlord increase rent by two dollars a week. It's more like fifty dollars a week.'

Panos said the market slowdown had been building since October and now resembled the uncertainty experienced during the early stages of the COVID-19 pandemic.

He said a retreat by investors was already reshaping the market, with owner-occupiers increasingly driving sales activity.

'The buyers who are still active are people looking for a home to live in,' he said.

'Many of them have already sold their existing property, so they need to buy.'

Investors, meanwhile, have become far more selective, focusing on sites that can be redeveloped into new housing to maximise the benefits available under the government's revised tax settings, he said.

Under the proposed changes, only newly built homes will qualify for full negative gearing concessions, while existing properties will no longer be eligible. The current capital gains tax discount will be replaced with a lower inflation-adjusted rate, but with a minimum floor of a 30 per cent tax rate. 

Panos said the downturn would likely force some agents out of the industry, particularly those heavily reliant on investor activity.

'If you're a real estate agent who has mainly been selling to investors, you're going to be affected,' he said.

He warned agents in regional markets with strong investor demand could be among the hardest hit.

'I don't think all of them will go, but some of the marginal operators will leave the industry.

'People are already saying this will weed out agents who entered the industry during the boom and leave when conditions become tougher.'

Despite the challenges, Panos said established agents with strong brands and reputations were likely to emerge in a stronger position.

'The very successful agents with a strong brand and credibility will fare better,' he said.