Treasurer Josh Frydenberg has warned that the property downturn in Sydney and Melbourne could flow into the broader economy, smashing small businesses and family budgets.
Just last month, property prices in the two cities were tipped to fall 15-20 per cent in 2019, according to LF Economics’ founder Lindsay David’s base case, but he believes there’s a slight chance the fall could accelerate to 50 per cent over the longer term. The economist warns this could be a “property bloodbath”.
And Frydenberg is concerned that small business owners that took out a loan against the value of their home may be badly affected by the price collapse.
Related story: 5 unexpected business decisions you should negotiate
Related story: Banks have ‘serious concerns’ about small business change
“People are concerned about the impact of lower prices on the future of the real economy and particularly that spill-over into household consumption and into the ability of small business to grow and expand and invest,” he said in an interview with The Sunday Age and Sun-Herald in Canberra.
The comments come out a fortnight out from his first budget mark a shift from the top levels of the Morrison government which has prided itself on using a “scalpel” to treat over-heating housing markets but now faces price falls largely beyond its control.
According to CoreLogic data, Frydenberg’s seat of Kooyong has seen the steepest price falls in Melbourne at 14 per cent since February last year, with Prime Minister Scott Morrison’s seat of Cook in Sydney down by 13 per cent.
Sydney house prices climbed by 75 per cent between 2011 and the middle of 2017 while in Melbourne they increased by 70 per cent over a similar period.
Shadow Treasurer Chris Bowen, whose western Sydney electorate of McMahon plunged by nine per cent, said price falls meant the Coalition has lost the right to label the intervention.
“It used to be we’ve got a scalpel the other side have got a sledgehammer,” said Bowen. “They don’t say that anymore. They can’t.”
Frydenberg also said “there was definitely too much heat in the market” and that the regulator’s intervention had led to a decline in investors and a growth in owner-occupiers and first-home buyers.
Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, property and tech news.