The Australian property market, already convulsing from a historic affordability crisis, now faces a fresh jolt as the government’s proposed repeal of a key tax break sends shudders through the sector. For years, investors have flocked to residential property, lured by the capital gains tax discount and negative gearing concessions. But the planned changes, confirmed late yesterday, threaten to upend the market’s delicate equilibrium.

The logic is straightforward: remove the tax advantages, and the leveraged investor exodus begins. But this isn’t a simple supply and demand equation. The market has been a store of value for the super-rich and a speculative playground for the middle class. The repeal could trigger a wave of selling, depressing prices and destabilising banks heavily exposed to mortgage debt. The Reserve Bank of Australia will be watching with alarm, as falling house prices could tip the economy into a recession.

Yet the government claims the move is essential to improve affordability for first-home buyers. But what is affordable housing? It is a subsidy from taxpayers to the next generation. The irony is that the tax break repeal is a tax hike by another name, hitting investors who have already leveraged themselves to the hilt. And capital flight will accelerate, with money flowing out of property into overseas equities or gold, punishing the Australian dollar.

The market was already soft. Auction clearance rates have been sliding for months, and Sydney and Melbourne are seeing price declines. The repeal will be a sledgehammer to a market that needs careful surgery. The bottom line: expect volatility, rising yields on Australian government bonds, and a sharp correction. The housing crisis will deepen before it improves.