Business leaders warn that Australia’s economy has yet to fully absorb the negative impacts stemming from the ongoing challenges in the housing and rental markets, with consumer confidence increasingly strained.

Prior to Treasurer Jim Chalmers’ federal budget announced in May, inflation and monetary tightening were the primary concerns for households. However, a shift has occurred as falling house prices and anticipated rent increases are exerting additional pressure on consumers. Data from CoreLogic showed that national house prices declined by 0.7 percent in July, marking the largest monthly drop since late 2022.

Meanwhile, rental prices are expected to rise as property owners attempt to recover income losses resulting from recent tax changes. The federal budget eliminated the 50 percent capital gains tax (CGT) discount and restricted negative gearing on existing residential properties. National real estate agency Ray White forecasted a potential 30 percent increase in rents following these measures, a projection that aligns with warnings from the National Australia Bank (NAB).

Despite these concerns, the Westpac-Melbourne Institute Consumer Sentiment Index recorded a 6.8 percent rebound to 88.9 in August. Nevertheless, this figure still falls within what analysts describe as a “pessimistic” range, signaling that consumer confidence remains fragile.

Peter Huddle, chief executive of Vicinity Centres, noted that while shoppers have shown resilience, it is premature to fully assess the budget’s impact on the economy. “Given the federal government’s housing policies remain relatively new, it will take some time for their impacts to become clear,” Huddle said. He emphasized the connection between household net equity and consumer confidence, suggesting that significant downturns in housing wealth could dampen consumer sentiment over time.

Huddle also highlighted potential downstream effects on retail sectors, pointing out that decreased housing transactions could negatively affect sales in categories such as homewares and electronics. Retail businesses are reportedly monitoring closely how housing policy adjustments influence housing market activity, consumer confidence, and retail spending overall.

Looking ahead, market watchers remain cautious as the Reserve Bank of Australia contemplates further interest rate increases, possibly as soon as the upcoming Melbourne Cup Day. The combination of tighter monetary policy and evolving housing market dynamics is expected to continue shaping consumer behavior and economic performance in the months ahead.