Government policy ‘turbocharges’ gridlock market leaving buyers and sellers frozen

The government’s latest budget policies aimed at helping first-home buyers have instead turbocharged a “gridlock market” leaving both buyers and sellers frozen in place, while rental prices climb.

Auctioneer and real estate veteran of 40 years, Tom Panos, has described the state of Australia’s property market as a “gridlock” where neither buyers nor sellers are able to make their next move.

The real estate guru said the government’s approach has been fundamentally flawed, criticising the lack of focus on addressing housing shortages and instead manipulating tax reform.

“It’s like (the government) has been moving the places on the monopoly board, it hasn’t created new homes, it hasn’t created new spots on the monopoly board. That’s what needs to be done to solve the issue.”

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He said the gridlock was a direct result of no public housing being built by the government in decades, who then shifted the responsibility to private investment by the Australian public through tax incentives like negative gearing and capital gains tax.

As the government stripped these incentives in the latest budget reform, hoping investors would then redirect towards new properties, Panos said the market had rejected this strategy.

“Investors haven’t gone off to buy new properties,” Panos explained. “And the reason why is investors, they’re thinking, am I going to go buy a new home and pay profit to a developer, which most likely this property will probably not go up, may go down? Because a lot of people think like you don’t buy a new car, you buy a used car, right?”

With investors withdrawing from existing properties but refusing to buy new ones, and first home buyers failing to step into the gap, the market has stalled.

A market of hesitancy

As Panos attends auctions each weekend, he paints a grim picture of what the market looks like.

“Hardly any buyers,” he said.

“Vendors are also hesitating coming onto the market because they’re thinking to themselves, ‘What’s the point? We’re not going to get our price.’

While high-end luxury properties have seen price corrections of around 20 per cent, and mid-tier homes have dropped 10 per cent, entry-level homes have remained stubbornly expensive in many areas, he explained.

Prices had softened, and while the budget had “turbocharged” the drop he said it wasn’t entirely the budget to blame, which high interest prices and cost of living all contributing.

While he said prices falling was a “good thing,” – surprising most other real estate professionals – first-home buyers weren’t taking action, paralysed by the fear of negative equity and blocked by increasingly strict bank lending criteria.

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“They’re buying it a little bit cheaper, but they know that they’re hearing it’s going to drop and they’re scared that if they buy something for $800,000, it’s going to be worth $700,000 in six months’ time,” Panos noted.

In a cruel twist of irony, the only cohort successfully navigating this market are second- and third-home buyers. Upgraders are using their stable unit values as a “launch pad” to buy heavily discounted mid-to-high range houses, leaving first-home buyers completely sidelined

Meanwhile, renters are bearing the brunt of the policy’s failure.

With investors inactive and no new supply coming online, rental options are drying up and prices are soaring.

Breaking the gridlock

To break the “gridlock market,” Panos said incentives needed to shift to developers, slashing council red tape, fast tracking building approvals and mitigating financial risks for developers.

“You’ve got to reduce the risk for the developers. They’re too scared,” he said.

“Making it easy for a developer … that would be the first thing to help increase supply.

He also noted that there needed to be more skilled migrants into the country to aid the struggling trades sector, finding more affordable and faster ways to build housing.

“If materials are so expensive, is there another way that we can build a home that’s cheaper? Well, there is. It’s called modular housing, and it’s actually begun where you build the home in a factory where you don’t have external factors like bad weather to impact and slow you up.”

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