We’ve all heard the calls for more affordable housing, and yet—property prices in Australia continue to climb.

Why would the Australian government, the very institution tasked with making life easier for its citizens, seem to allow this endless rise?

If you’re a first home buyer, particularly in Sydney, these skyrocketing prices may feel more like an insurmountable mountain than a cosy nest egg in-the-making.

But here’s the twist: there are undeniable benefits to the government when property values soar. Let’s peel back the layers on this quirky reality, back it up with data, and shine a light on why home prices going up isn’t just coincidental—it’s actually beneficial to Canberra.

Secret Reason #1 – Increased Tax Revenue is the Golden Goose

The Australian government reaps a financial windfall from high property prices through a variety of taxes that kick in whenever real estate values rise. From stamp duties to capital gains taxes, soaring prices fill government coffers in ways that might surprise you.

Stamp duty, typically paid as a one-off transaction tax, is a big earner levied each time a property is bought or sold. The higher the property value, the more the government earns. In 2023 alone, New South Wales brought in $9 billion in stamp duty revenue, a significant increase from previous years.

Many first home buyers struggle with these extra costs, although there are government concessions in place for some. To the government, every house sold at a higher price is another step towards a balanced budget.

There’s also capital gains tax (CGT). Homeowners and investors who sell at a profit trigger CGT—a tax on the “gain” in property value. CGT provides even more income when the property market is booming, with property investors seeing their portfolios swell, and the government taking a hefty slice.

We can’t forget land tax too. This annual tax on property holdings rises with the property’s assessed value. For investors with a portfolio, this is a regular contribution to the government’s revenue stream. As CoreLogic notes, the average house price in Sydney as of mid-2024 is above $1.5 million, which equates to increasingly higher land tax contributions across the state.

According to ABS data, government tax receipts from property transactions increased by 30% over the last decade, correlating directly with rising property prices.

It’s safe to say that if property values fall, tax revenue drops too—a scenario the government isn’t particularly eager to face.

Feel free to explore ABS data on property-related tax revenues at the Australian Bureau of Statistics – Property Data here: https://www.abs.gov.au/statistics.

Secret Reason #2 – Positive Economic Indicators: The “We’re All Wealthier” Illusion

Rising property prices allow the government to tout strong economic indicators. High home values can create a perceived wealth effect—homeowners feel wealthier, even if they aren’t selling.

From a psychological perspective, when people feel richer, they’re more likely to spend, which in turn drives economic growth, further cementing the government’s position.

The “wealth effect” also influences voter sentiment. When property owners (who make up a large portion of the Australian electorate) see their properties appreciating, there’s an implied validation of government policy. Higher property values suggest a strong economy, even if housing affordability is increasingly out of reach for the next generation. For governments, this perception is politically advantageous, especially come election time.

A recent report by Domain shows that 65% of Australian wealth is tied up in real estate. As home values increase, this percentage grows, boosting overall net worth for homeowners, at least on paper.

But for first-home buyers, this “wealth effect” means higher entry costs, a fact often overlooked in policy discussions.

If the government’s secret motto were a Monopoly board slogan, it’d be, ‘Build up, because everyone’s wealthier when property is pricey—even if it’s only on paper.’

Check out Domain’s report on the distribution of wealth in property at Domain Wealth Distribution Report: https://www.domain.com.au/research.

Secret Reason #3 – Strengthened Economic Stability: Banks Love Property

Australia’s banking sector is heavily tied to real estate. Rising property values secure Australia’s banking stability by keeping mortgage lenders in the black.

Banks hold significant amounts of residential mortgage debt, and their health is closely tied to property prices. Higher prices reduce the risk of default, which helps keep the financial system stable—a hidden incentive for policymakers to favour a rising property market.

If the property market were to falter, bank balance sheets could weaken, leading to tighter lending restrictions, lower economic growth, and potentially a domino effect of economic contraction. To avoid this, the government often finds itself subtly supportive of the upward price trend.

SQM Research recently showed that mortgage lending accounts for over 60% of Australian banks’ loan books. Property price increases provide a safety net for these financial institutions, helping maintain stability and supporting the broader economy.

Australian banks and property prices are like Vegemite and toast—separate them, and things get messy quickly.

Find out more about the state of Australia’s mortgage market at SQM Research Mortgage Insights here: https://sqmresearch.com.au.

Secret Reason #4 – The RBA’s Leeway: High Property Prices as Inflation Dampeners

Interestingly, rising property values give the Reserve Bank of Australia (RBA) some leeway in managing inflation.

As housing costs climb, consumer spending on other goods and services may decrease—particularly among households spending more on their mortgage payments. This subtle decrease in discretionary spending can keep inflation in check, allowing the RBA to adjust interest rates cautiously rather than dramatically.

In other words, when people are locked into high mortgage repayments, they have less to spend elsewhere, which indirectly slows down inflation in other sectors. For a government and central bank fighting to manage inflation, high property prices serve as an inadvertent check on economic overheating.

According to CoreLogic’s data, monthly mortgage repayments have increased by at least 25% since the RBA rate hikes of the past year. This increase ties up household income, curbing spending power in other areas. It’s a less conventional way of dampening inflation but one that makes the government’s job a little easier.

With property prices so high, the RBA might just call your mortgage its new secret weapon against inflation. This is counter to what they say but very in tune with reality.

For up-to-date information on the Australian mortgage landscape, explore CoreLogic’s property market insights at CoreLogic Mortgage Trends: https://www.corelogic.com.au.

Is There a Way Out for First Home Buyers?

As the government reaps the rewards of rising property prices, first home buyers are left navigating an increasingly difficult landscape. If you’re feeling disheartened, know that there are ways to approach this market wisely. Here are my top 3 approaches to help:

1. Look for properties in emerging areas that haven’t been swept up in the frenzy. Even within Sydney, certain suburbs offer better value and potential for growth. Keep an eye on areas flagged for future development or infrastructure upgrades.

2. Consider co-ownership. Buying with family or friends can be a strategic way to enter the market and share the financial load. This style of property buying is likely to become more widespread as property prices become more out of reach for first home buyers.

3. Get expert guidance. The market’s complexities don’t need to be overwhelming with a trusted Real Estate Buyers Agent by your side. I can genuinely say that my Buyers Advocacy service gets first home buyers into the market in under 2 months—saving you stress, time, missed opportunities and, of course, lots of $$$.

Need Help? Partner with Kitty & Miles—Your Trusted Property Buyers Agent

At Kitty & Miles, we understand the challenges first-home buyers face in a market influenced by complex economic forces.

As your dedicated real estate buyers agent, we provide insight, strategy, and personalised guidance to help you find and secure a property that meets your needs without compromising on value.

Drop us an email today at support@kittyandmiles.com.au and let’s navigate the Sydney market together with confidence and 100% certainty.

While high property prices might benefit the government, they don’t have to be a permanent roadblock for first home buyers.

By staying informed, timing your moves, and having a buyers advocate like Kitty & Miles on your side, you can still make your property dreams a reality—even in a market that seems stacked against you.