What happens when confidence in bricks and mortar cracks in Queensland?

What a difference a federal budget and a few weeks makes. The hotly contested tax reforms targeting property investment are yet to be finalised but nonetheless, the market reaction has been swift.

There’s a saying in property: confidence is key. Never has that been so clearly on display.

Across Queensland, the sentiment shift has been abrupt. Feedback from agents paints a consistent picture – the market is in a holding pattern. Sellers are hesitant. Buyers are cautious. Prospective investors have faded and existing ones are in a state of flux.

The initial data backs it up too. In Brisbane, we’ve now recorded four consecutive weeks where the preliminary auction clearance rate has sat below 50 per cent. Final clearance rates dipped as low as 34.1 per cent - the weakest since mid-2020. At the same time, one of the country’s major lenders Westpac, has reported a 20 per cent drop in investor loan applications in the three weeks following the Budget.

The housing market’s momentum was already slowing off the back of interest rate hikes and global economic uncertainty, but the budget announcement has really applied the brakes. Some say that’s a good thing believing that affordability will miraculously emerge. It’s not that simple.

The government’s plan is to drive investors away from established housing to give a leg up to first home buyers. In principle, many would argue this is fair but it’s not a cut and paste exercise. Fewer investors doesn’t mean that aspiring first time buyers immediately fill the void. Properties sought by investors and first homeowners are not always interchangeable. There remains an affordability obstacle to overcome albeit that ‘competition’ may be diminished.

The government predicts these reforms will create an additional 7,500 first home buyers per year over the next decade. Every new first home buyer counts but this is hardly a material shift when you consider that on average, 115,000 first home buyers have entered the market over the last decade.   

Shifting investors towards new builds may seem like a good idea. It frees up established homes for first home buyers and funnels investors to new construction thereby boosting supply. But there’s little evidence to support the proposition that investors will pivot to new builds. For many investors, the numbers simply won’t stack up given the hefty price tag for new builds.

In Queensland, construction costs have surged dramatically in recent years. The cost of building a new home has jumped more than 40% since 2021–22. At the same time, we’re facing acute labour shortages. The result is a constrained pipeline where delivering new supply is becoming harder and more expensive. Escalating construction costs lead us back again to affordability challenges. Financial viability is key for builders. Banks tighten the reins when buyer activity is weak and house prices start to fall.

Meanwhile, we can’t ignore the rental market. Around one in three Queensland households rent. Existing investors may be grandfathered under the new rules, but if fewer future investors enter the future market, the replacement rate falters placing additional pressure on rents. Some renters will transition to home ownership, but it won’t be an equal swap.

Private investors supply around 95% of our rental housing in Queensland. While investors are perceived as the fly in the ointment by some, their vital role can’t be ignored.

The sentiment behind the federal government’s planned reforms is well founded. The economic and psychological implications of declining home ownership are profound. We all have a shared aspiration to see our children and grandchildren own a home. For this to happen, we must tackle the affordability and supply beast. 

There’s no quick fix to a problem that’s been years in the making and now exists alongside a series of other wicked problems. The solution requires longer term, structural change. The plan must consider   all the moving parts and stakeholders in the housing system.

The federal budget impacts the entire nation, but Queensland is at a particular critical juncture. We need clear signals that property remains a stable, reliable place to invest, to build, and to plan for the future. If uncertainty persists, investment slows and supply tightens. Affordability worsens. This is not something Queensland can afford.