Scott Morrison says proudly that - so far - Australia has been able to achieve "a soft landing" in the housing market. He points out Sydney's annual price growth rates of about 17 per cent have fallen to 3 per cent in the space of nine months after a "pretty subtle change" in macro-prudential controls.

Well that's one explanation. The other explanation is much less subtle, certainly to me.

I am confident the apartment market in Sydney began to cool immediately I persuaded my daughter and prospective son-in-law to buy an apartment in the second half of last year.

Despite an eye-watering price tag for a reasonably ugly, red-brick, unrenovated two-bedroom unit, I knew they should take a step into the housing market so they didn't find their entry completely impossible when they return from an overseas posting in a few years. After all, what could go wrong?

I might keep my housing advice to myself for a while. After all, I am also the brilliant market strategist who decided several years ago that the Perth market could travel in only one direction. Remember the resources boom? I have now been trying to sell an extremely modest, relatively cheap one-bedroom investment apartment there without taking too much of a loss.

"Not a solitary soul came through," my regular weekly email communication from the agent about the weekend informed me dolefully on Monday. "The market here for one bedrooms is not flash."

It's only, ahem, money. And really I know I should be happy with the overall change in the housing market as being in the national interest.

Panic stations
Over the past few years, Australian house prices – particularly in Sydney and Melbourne – jumped to shockingly high levels, providing windfalls for some but becoming totally unfair to a younger generation and anyone else who could not afford to buy.

The size of mortgages also made Australians among the most heavily indebted households in the world, leading to plenty of international analysis about the potential "risks" to the economy and the banking system in the event of a sharp fall. In Australia, most analysis shrugged that off. Investing in housing in Australia's major cities has always proved an extremely worthwhile bet (except for some people in Perth, of course!).

Last February, for example, prices in Sydney rose 2.6 per cent in one month. I took a keen interest in this because I panicked myself into buying my new apartment in one day as soon as I saw that startling figure featuring in an online afternoon news story in The Australian Financial Review. By 6pm the expensive deal was done – rather than waiting for prices to keep going up.

But like so many other "downsizers" of a certain age, I was also lucky. I had just sold the crumbling family home in the same market, meaning I could afford it.

So what happens now? A gentle decline to more-reasonable, affordable prices for more people? Or an accelerating drop that becomes self-fulfilling and damaging?

It turns out the experts are almost as confused as this columnist as they anxiously look at the weekly signals of auction clearance rates and prices being paid.

One of Australia's most famous property developers, Harry Triguboff, is among those deeply alarmed by the extent and abruptness of the change in demand in the market, compounded by a glut of inner-city apartments that have been or are still being built in Sydney, Melbourne and Brisbane.

The new curbs, especially on investor loans, imposed on the banks last year by the Australian Prudential Regulation Authority have clearly had a major impact. So have new taxes and restrictions by state and federal government on foreign investors, obviously aimed at the Chinese.

In his interview with The Australian Financial Review, the Treasurer argued that Triguboff was focused on the apartment market in some cities where supply had been very strong and that normal economic forces of supply and demand will apply in such cases.

But he insisted that "the great thing about macro-prudential controls" is that they can be easily and quickly adjusted in response to changing market conditions.

Sledgehammer
The political contrast, of course, is supposed to be with Labor's policy of "structural change to the tax system" that includes ending negative gearing tax breaks for existing apartments and doubling capital gains taxes.

The Coalition rejected this approach ahead of the 2016 election, with Morrison describing the measures as a "slegehammer" that would devastate prices and stop "mum-and-dad investors from getting ahead".

That argument is heating up again with the start of the parliamentary year – but with the twist of the question mark over the direction of housing prices.

So Labor mocks the government's claims about a "sledgehammer", pointing out confidential Treasury advice at the time showed the impact on property prices would be modest. Naturally, Morrison still disagrees. But he is now also arguing the impact would be even more severe given it would be "on top of … the targeted, calibrated interventions" to deal with the overheating.

"How far do you want property prices to fall in this country and undermine consumer confidence?" he shouted at Chris Bowen in question time on Monday, warning it would result in a "crash landing" rather than a soft landing.

Who wins this argument will be critical to the government's chances of convincing voters Labor is an economic risk rather than a party dealing sensibly with "housing affordability".

My unhappy Perth agent has no doubts.

"Hopefully, they will not get rid of negative gearing," her (unprompted) email continues. "The effect that would have on our investors would be disastrous."

But what would she – or I – know?

SOURCE: www.afr.com