The budget's hidden housing problems + Don't get fleeced by this

Hi everyone,

What a week to be watching the numbers. On Wednesday the Bureau of Statistics handed down the April inflation figures and, on the surface, it looked like good news - headline inflation actually fell. But as is so often the case, the headline tells you one thing and the engine room tells you another. Underneath, the inflation that really matters to the Reserve Bank crept higher again.

The other big theme is the slow-burn fallout from the budget’s housing changes - and this week I’ve leaned on some of the best property analysis going around to dig into two things most of the coverage has missed: what happens to the number of homes that actually change hands, and what happens to renters.

In this week’s newsletter:

• The headline inflation figure that flatters.

• Why the trimmed mean is the number to watch.

• Where the price pain actually is.

• What it means for interest rates.

• The budget’s hidden housing problems.

• The other side of the coin - what happens to rents?

• Modern consumerism is designed to fleece you - how to fight back.

• Some welcome relief on power bills.

• A tax-time warning.

This week’s inflation figure was the headline that flatters …

The big economic news of the week landed on Wednesday. According to the Australian Bureau of Statistics (ABS), headline inflation fell to 4.2 per cent in the year to April, down from 4.6 per cent in March.

On the face of it, that’s a relief - the first move in the right direction after months of climbing. But before anyone celebrates, it’s worth understanding why it fell, because the reason is almost entirely about petrol.

Remember the March shock? Automotive fuel jumped a staggering 32.8 per cent in a single month as the Middle East conflict closed the Strait of Hormuz. In April, fuel went the other way, falling 7.0 per cent - partly because the government halved the fuel excise on 1 April. That single swing did most of the heavy lifting in pulling the headline rate down. Strip out the petrol-pump rollercoaster and the picture is far less comforting.

Here’s the catch: fuel is still 23.5 per cent more expensive than it was back in February, before the conflict hit. So this is a temporary excise cut masking a cost that hasn’t really gone away … and the excise relief is exactly the kind of thing that reverses.

Have a look at the chart below, it tells the story far more clearly than I can in words:

Why the trimmed mean is the number to watch

This is the bit the headlines mostly glossed over, and it’s the bit that matters most. The Reserve Bank doesn’t set interest rates off the headline figure, because the headline gets thrown around by volatile items like petrol and fruit and veg. Instead it watches the “trimmed mean” - a measure that strips out the biggest movers in both directions to reveal the underlying trend.

And the trimmed mean went up, from 3.3 per cent to 3.4 per cent … its highest level since September 2024. So while the headline number improved, the inflation number the RBA actually cares about got a little worse. That’s the opposite of what you’d want to see, and it’s the reason I’m not breaking out the champagne.

It also remains stubbornly above the Reserve Bank’s 2-3 per cent target band, where it has now sat for a long stretch.

Where the price pain actually is

When you go through the inflation figures category by category, you can see exactly where households are still being squeezed the most.

Seven of the 11 major groups did ease over the month, which is encouraging, but the big-ticket essentials are where the damage is concentrated:

• Housing: Still the single biggest driver of inflation at 6.3 per cent, dragged up by rents, new-dwelling costs and a brutal 15.3 per cent rise in utilities as the energy rebates wash out.

• Transport: 6.6 per cent, easing from 8.9 per cent as fuel unwound, but still elevated.

• Food and groceries: 2.8 per cent, with meat and seafood climbing to 5.0 per cent.

• Health: 4.0 per cent, up from 3.0 per cent.

• Clothing and footwear: Came in at 5.9 per cent.

In short, the falling headline figure is being driven by a temporary fuel reversal, while the costs that hit every household every week - like keeping a roof over your head and the lights on - are still running hot.

What it means for interest rates

This is where it gets uncomfortable. The Reserve Bank lifted the cash rate to 4.35 per cent at its May meeting. It was the third consecutive hike this year and an 8-1 split decision, leaving the door open to more.

In a statement at the time, RBA Governor Michele Bullock warned of “second-round effects”, where higher fuel costs seep into the price of everything that has to be trucked, flown or freighted.

The RBA can now point to falling headline interest as evidence its rates strategy is working. But the rising trimmed mean is exactly the kind of signal that keeps a central bank nervous …

The threat of a fourth rate rise is very much alive, in my opinion.

We are also at, or very near, the top of this rate cycle. The June quarter inflation figures now loom as the genuinely decisive moment. If the trimmed mean keeps rising, the RBA will feel it has no choice but to up the cash rate again, even with households already stretched to breaking point. If it stalls or eases, the case for a long pause will be made.

Either way, this is not the moment to assume relief is around the corner. If you’ve got a mortgage, it remains a very good time to be chasing your own rate cut rather than waiting for the RBA to hand you one.

The budget’s hidden housing problem

One of the best bits of property analysis I’ve read in a while comes from Nerida Conisbee, Chief Economist at Ray White.

The federal budget’s housing measures are designed to push investor demand out of established homes and into new supply. It’s a reasonable goal. But as Nerida points out, there’s an unintended consequence that almost none of the commentary has picked up on, and I think it’s the most important part of the whole story: the changes are likely to reduce the number of homes that actually change hands.

That might sound like a dry, technical point. It isn’t. The number of property transactions is one of the great hidden engines of the economy and of state government revenue ... and when it slows, the pain spreads a long way beyond the housing market.

Why transaction volumes matter more than prices

We’re all conditioned to watch house prices. But as Nerida’s analysis spells out, prices and the number of sales are two very different things. Also, over the past 25 years, sales volumes have been far more volatile than prices, swinging from fewer than 380,000 homes a year to more than 580,000.

The sharpest falls have always come when people’s ability or willingness to move is disrupted - tighter credit, higher rates, weaker confidence, or policy change. Volumes slumped through the late 2010s as lending standards tightened, then fell again as rates rose. By contrast, when rates fell and credit loosened through the pandemic, volumes roared back almost overnight.

The budget now adds a fresh disruption, and uncertainty alone is often enough to make people sit on their hands:

Buyers may pause while they work out whether the changes affect prices, rents and future demand.

Sellers may delay if they’re unsure how deep the future buyer pool will be.

Existing investors have a clear reason to hold rather than sell (selling means giving up grandfathered tax treatment).

New-build investors may hold longer too, knowing the future investor buyer pool for their property has narrowed.

And here’s why that matters so much. A home sale is never just a change of ownership. It kicks off a whole chain of activity: buyers borrow, insure, move, renovate and furnish. Sellers repair, upgrade and often buy again. Every transaction supports a network of mortgage brokers, conveyancers, valuers, building inspectors, removalists, tradies and retailers. Rising prices can make people feel wealthier on paper … but it’s transaction spending that drives the economy.

The stamp duty time bomb for state budgets

Nowhere is this decline in transaction spending clearer than in state government coffers.

Stamp duty isn’t collected because homes exist, or because values rise on paper. It’s collected only when a property changes hands. That makes state budgets extraordinarily exposed to the level of activity in the market - not the price.

And the exposure is enormous. As the Ray White team highlights, in 2024-25 stamp duties on conveyances made up 20.9 per cent of all state and local government taxation revenue nationally. In some states it’s even higher.

So a fall in housing activity isn’t just a problem for buyers, sellers and property-related businesses. It’s a budget problem.

State governments lean heavily on revenue from people moving, upgrading, downsizing and investing … and stamp duty revenue has tracked the total value of residential transactions closely over the past decade. That value depends on two things: how many homes sell, and what they sell for. A high-price market with fewer sales can still leave a hole, because there are simply fewer taxable events.

Then there’s the supply of new homes issue ...

Construction: where the homes are actually being built

Of course, the other half of the budget’s plan is to get more new homes built. So where is that actually happening?

The latest construction figures below show the activity is heavily concentrated in a few states, and Western Australia is in a league of its own.

Nationally, total construction work rose 3.4 per cent for the quarter and 6.3 per cent over the year. But the standout is Western Australia, where this work surged 30.6 per cent in the quarter - up from 28.5 per cent on a year ago. We are seeing a genuine boom in WA.

In Queensland, construction is also up 6.0 per cent annually. In South Australia, it’s strong at +11.5 per cent, New South Wales is steady and Victoria is actually going backwards (−4.7 per cent over the year).

Residential building specifically is up 5.6 per cent nationally over the year, with Queensland (+19.6 per cent) and WA (+15.5 per cent) building away.

The encouraging news is that the supply pipeline is growing. The worry is that it’s growing in the states that already have land and labour to spare, not necessarily where the population pressure is most acute.

Less spending, less profit

It looks like the budget’s housing changes have been framed around increasing supply and affordability. But if they make investors and households less willing to transact, the damage won’t stop at house prices. It will flow through household spending, business activity and state government revenue.

We already have a housing shortage. A market where fewer homes come up for sale makes that shortage harder to fix. It also leaves state budgets more exposed to every wobble in housing activity.

The other side of the coin - what happens to renters?

Nerida Conisbee has also followed up the budget effects on housing with a second piece that I think is essential reading … it tackles the question the rest of us tend to skate over: if you make it less attractive to be a residential landlord, what happens to renters?

Her answer is blunt, and hard to argue with: rents rise. As she puts it, that’s “not ideological… it is the basic mechanics of how constrained markets work.”

As established rentals are gradually sold off to owner-occupiers, those homes leave the rental market. But the people who need to rent don’t suddenly disappear - students, young workers, migrants, people saving for a deposit, older Australians who don’t own a house all still need somewhere to live. So you end up with fewer rentals available, but the same level of demand. Eventually, the market adjusts the only way it really can: through higher rents.

Nerida makes the point that weaker price growth does not automatically mean better affordability … the pressure just shifts.

Her clearest example is Melbourne, where over the past five years house prices have risen only around 11 per cent while rents have jumped roughly 35 per cent. Same city, very different stories depending on whether you own or rent.

She also points out how policy was deliberately “grandfathered” - meaning investors keep their current treatment. This is because the government understood that a rapid investor property sell-off would have caused a rental shock. Grandfathering slows that process, but it doesn’t switch it off.

While it’s entirely possible the budget changes will take some heat out of housing prices, they will also make life harder for renters.

If you’re renting in a tightly-held inner suburb, this is the dynamic to keep an eye on over the next couple of years.

Modern consumerism is designed to fleece you - here’s how to fight back

We all know the boring everyday savings advice: make coffee at home, cancel unused
subscriptions, pack your lunch, stop buying avocado toast and basically develop the discipline of a fasting monk.

That stuff sort of works. But iron-clad restraint is rarely sustainable, or enjoyable. Also, this advice misunderstands the real driver of modern spending habits.

These days, consumerism is designed to exploit us - and that, rather than a lack of willpower, is the bigger problem I think.

Let me explain, and give you some practical ideas to fight back.

Hey, easy spender

If you think spending feels automatic, rather than intentional nowadays, you are not wrong.

That, my friend, is by design.

By removing the pauses that once protected us from impulsive decisions, splashing money on this or that couldn’t be easier.

If you think about it, our entire economy increasingly relies on this strategy.

For instance:

You search for something once and suddenly ads follow you around the internet like a digital salesman reading your mind. Online shopping platforms save your card details, address and preferences so buying something takes seconds. One-click purchasing exists because there’s no thinking. Not even for a second.

Offline, it’s the same story.

Supermarkets place chocolates and junk food near the register because we are tempted and tired. Shopping centres are designed to keep you wandering - and spending. Food delivery apps make takeaway easier than opening the fridge. Streaming services autoplay the next episode before you even decide whether you want to keep watching.

Convenience is profitable.

‘Add to cart’. Actually, ‘buy now’ - it’s faster …

Inviting friction back in

While most traditional financial advice tells us to rely on willpower to fight everyday spending temptations, most of us know this is unreliable. When you are busy, stressed, tired or distracted (which is most people most of the time), convenience is welcomed - it’s almost soothing.

But that same feeling isn’t felt when the credit card statement arrives.

A better strategy for today might be to change our behaviour to make mindless spending slightly harder and good financial decisions slightly easier.

In other words: we need to add friction back in.

Here are some ideas:

• Delete your saved credit card details from shopping apps and websites. Having to physically get up, find your card and manually enter the numbers sounds minor, but it interrupts impulse purchases surprisingly well.

• Turn off one-click purchasing wherever possible remove shopping apps from your phone entirely. Most mindless purchases happen during boredom scrolling, not intentional shopping.

• Use the 24-hour rule for non-essential purchases. You’ll be surprised how many “must-have” buys lose urgency overnight.

• Unsubscribe from retailer emails. You are not “saving money” because something is 30 per cent off if you never planned to buy it in the first place.

• Delete Uber Eats and takeaway apps so ordering dinner requires more effort.

• Log out of online shopping sites after each purchase instead of staying permanently signed in.

• Put alcohol and expensive snacks in inconvenient spots. People consume less when things require more effort.

Automate the good behaviour

Consumerism automates spending, but you can automate saving and being money smart too. Make this as easy as clicking ‘buy now pay later’ by:

• Keeping your phone away from your bed at night. Late-night scrolling is prime time for impulse spending because you are bored and you might also crave a dopamine hit - buying ourselves stuff releases happy chemicals.

• Having a separate “fun spending” account with a weekly limit instead of
  micromanaging every coffee purchase. Extreme budgeting often fails because it feels punishing.

• Setting up automatic bill payments - avoid late fees and financial chaos by taking the friction OUT of everyday admin.

• Automate a savings buffer - Protect yourself from going into debt for unexpected life expenses such as your car breaking down by always having a savings buffer. Automate deposits into this account regularly.

• Getting paid into the best account - If you have an offset account, make sure your employee pays directly into it so you don’t need to move money later. Likewise, a high-interest savings account should be your pay day default.

• Set up salary sacrificing/packaging - Through automatic transfers or directing extra income straight into super - and benefit from the tax advantages.

Outsmart them

Modern consumerism wins through tiny moments of convenience repeated thousands of times.

But you can fight back.

By making mindless spending harder and good money habits easier, you create a defence system of your own.

Because in an economy built to remove every obstacle between you and buying something, friction can actually protect you.

Use it to your advantage.

Some welcome relief on power bills

A bit of genuinely good cost-of-living news for once.

From 1 July, the electricity safety net benchmark prices are set to fall for the first time in six years across many regions.

Some households could potentially save up to $229 a year.

In my role as Economic Director at Compare the Market I I looked into this and found the Australian Energy Regulator has confirmed benchmark price cuts. In NSW regions, benchmark prices are set to fall by between 3.4 and 7.7 per cent, while southeast Queensland will see reductions of between 7.2 and 10.7 per cent. In Victoria, default offers are dropping by an average of 5 per cent - worth up to $84 a year for households.

But - and it’s a big but - don’t mistake the safety net for the best deal.

South Australia is actually seeing increases on some tariffs, and households that have stuck with the same retailer for three or more years are paying around $221 a year more than people on fresh plans.

The standing offer is the baseline, not the best deal. Circle 1 July in your calendar, spend ten minutes comparing plans, and you could save far more than the benchmark cut alone.

A warning sign at tax time

One to watch as we head into tax time. The Tax Ombudsman, Ruth Owen, has released her office’s first complaints snapshot, and it shows complaints are up 127 per cent so far this year. Most relate to debt collection, penalties and interest on tax debts - a sign the ATO’s tougher stance on chasing debts is starting to bite.

The encouraging part, and the reason I’m flagging it, is that the Ombudsman’s office is clearly making a difference. In 31 per cent of complaints about penalties and interest, they helped secure either a reduction in the debt or the removal of interest charges.

So if you’re a small business owner or individual feeling squeezed by an ATO debt, it’s worth knowing there’s a free, independent avenue to ask for a fair review.