As uncertainty hits everywhere, the Australian housing market continues its usual path upwards.Less than two months ago, I let rip at the IMF for titling its latest World Economic Outlook as “Global Economy: Steady amid Divergent Forces” despite the fact a clueless fool sits in the White House ready to unleash chaos should his blood sugar levels fall too low.If the graph does not display click hereI can’t wait for the IMF’s April update, which will no doubt tell us that the forces remain “divergent” if steady.The war in Iran makes it rather impossible to say what will happen in the economy over the next six months – aside from gas companies profiting off human misery:If the graph does not display click hereBut there is, admittedly, one other constant in our economy: government policy that juices demand for housing will increase house prices and reduce affordability:If the graph does not display click hereOn Tuesday the latest dwelling price figures revealed that, in a shock to no one, the first home buyer 5% guarantee has caused dwelling prices to soar.In the December quarter, the average price of dwellings across Australia rose 2.

7%, the biggest one-quarter jump since the end of 2021.There was a 7.5% surge in Western Australia – the second-biggest one-quarter jump on record in that state.The average dwelling price growth in the last three months of 2025 in all states and territories except Victoria and New South Wales was greater than the increase in household disposable income:If the graph does not display click hereThat is just the latest quarter in a long run of dwelling prices outpacing incomes.It has been the norm since the turn of the century.

After such a time you might think that there is more than enough evidence to know that policies that increase demand – whether it be for investors through the capital gains tax discount, or first home owners through first home buyer grants or the 5% deposit guarantee (which is just a first home buyer grant in disguise) – will increase prices,The big jump in prices in Western Australia meant that state joins NSW and Queensland with an average dwelling price above $1m:If the graph does not display click hereThe December-quarter price increases were across the nation, and for both houses and apartments,Given first home buyers are more likely to be buying an apartment or townhouse, this would suggest that those first home buyers who used the 5% guarantee were suddenly finding the price they were expecting to pay for such a home rose by nearly 12% in Perth (or $74,100), 7,2% in Brisbane ($53,000), or 6,4% in Adelaide ($44,200):If the graph does not display click herePerhaps that screams a successful housing policy but I am less inclined to think so.

It is why it’s absolutely imperative that in this year’s budget the government reverses the 25-year trend of juicing demand for housing.The good news is that the rumours of action on the capital gains tax discount and negative gearing are louder than they have been before any budget this century.The worry, though, is while the treasurer, Jim Chalmers, might be pushing for true reform to the system, the prime minister, Anthony Albanese, has shown a tendency to be scared to do anything that might upset the status quo – let alone repair the damage John Howard wrought on the system.The issue is over just how significant the reform will be, and whether it will be enough to undo the distortion in the system.A small change will likely do little, if anything, and may do more harm than good, because it will undermine efforts for future changes to make the system fairer – because the response will be that the change to the CGT discount did nothing.

The crux of the issue, as my colleague at the Australia Institute Matt Grudnoff put it, is the question of who deserves to pay higher tax rates – someone on the minimum wage ($49,296) doing an extra shift, or a CEO on the income of $200,000 who makes a $400,000 profit from selling their investment property?Right now, the CEO pays less tax on that $400,000 profit than does the minimum wage earner doing an extra shift.Minimum wage earners are in the 30% tax bracket, so the marginal tax on that extra shift is 30%.The executive, meanwhile, is in the 45% tax bracket (excluding the 2% Medicare levy).But they don’t pay 45% on that $400,000 profit, they get a 50% discount, so instead they only pay 22.5% - that makes for a big incentive to invest in property and get most of your income that way.

There has been some talk of reducing the discount to 33% - but that would still have the tax on the $400,000 profit less (albeit slightly) than that paid by the minimum wage earner doing an extra shift.Back in 2016 and 2019, the ALP proposed a 25% discount.That would at least see the exec paying more than the minimum wage earner, but it is clearly still providing an incentive to keep investing.If the graph does not display click hereIn an uncertain world, the temptation for the government might be to not rock the boat, but, as we have seen yet again this week, more government policy designed to increase demand for housing only brings the certainty of less affordability.The time is now to break with the wrongs of the past and fix the capital gains tax discount once and for all.

We must begin the long path of returning the Australian dream to buying a home, rather than negatively gearing one.Greg Jericho is a Guardian columnist and chief economist at the Australia Institute