Treasurer Jim Chalmers is insisting Australian property prices will start growing again next year as the Commonwealth Bank blames Labor’s Budget tax changes for potentially the worst downturn in more than four decades.

“If you look at the numbers put out by the Commonwealth Bank, for example, this week, where they had some forecasts - updated forecasts for house prices - they still expected house prices to return to growth next year,” he told ABC Radio National on Thursday.

“And so again, another really important reminder, people don’t buy and sell houses on a week-to-week or month-to-month basis.

“Housing is a longer-term investment. Over time we expect our policies to have an impact on house prices, but house prices will continue to grow, but a bit more modestly and that means more affordable options for more first home buyers to get into the market, which is our objective here.”

Dr Chalmers rejected a suggestion Labor’s changes to negative gearing and capital gains tax concessions were solely to blame for the housing downturn, with house values last month falling in every capital city market except Darwin.

“I think that’s one of a number of reasons. I think that there’s not one factor driving softness in the housing market,” he said.

“We saw house prices and auction clearance rates soften even before the Budget, reacting to interest rate changes and developments in the economy more broadly.”

Shadow Treasurer Tim Wilson has seized on the comments as a concession from Labor that its Budget was to blame for the housing market downturn.

“Jim Chalmers has conceded his Budget is destroying the wealth and wages of Australian families, while Australians are living the consequences of his active inflation agenda,” he said.

“The Treasurer confirmed that house price falls can be attributed to his taxes on housing and family savings, and record high interest rates that are driven by his active inflation agenda, finally confirming that house prices are collapsing by design of his Budget.”

Belinda Allen, the Commonwealth Bank’s head of Australian economics, said the Reserve Bank’s February and March interest rate hikes sparked the housing market downturn before the May Budget tax changes added to the decline.

“We actually saw home price falls start in April after the Reserve Bank of Australia lifted the cash rate earlier this year,” she told a Senate hearing into intergenerational housing inequity on Thursday.

“And a number of reasons why home prices have fallen - those interest rate hikes, weaker sentiment because of the Middle East conflict, and of course, the tax policy changes in May have all contributed to what we are seeing across the board is investors, owner-occupiers and first homebuyers now really sit on the sidelines of the housing market as they’re watching and waiting and seeing developments unfold.”

Robert Parker, the Commonwealth Bank’s executive general manager of retail banking, noted overall mortgage applications had dived by 15 per cent since the May Budget, with investor applications plunging by 28 per cent.

“We have observed that mortgage applications overall are certainly softer,” he said.

The Commonwealth Bank, Australia’s biggest home lender, is predicting a 10 per cent capital city property price decline from the peak earlier this year to a trough next year.

It is also predicting a national decline of 9 per cent, taking in regional areas, which would be worse than the 8.2 per cent plunge from 2017 to 2019 after the Australian Prudential Regulation Authority cracked down on interest-only loans.

Should that materialise, Australia would be suffering from the worst downturn since 1982 and 1983 when the nation was in the grip of a year-long recession and a drought.

The Commonwealth Bank is even more downbeat about Sydney, forecasting a 13 per cent drop from its February peak, which coincided with the first of the Reserve Bank of Australia’s three interest rate rises.

Melbourne values were tipped to fall by 12 per cent from a peak reached much earlier in March 2022.

Brisbane, Perth and Adelaide were expected to see an 8 per cent decline, with the Queensland and South Australian capital markets peaking in May.

That is when Dr Chalmers delivered a Budget that restricted negative gearing to new builds from July next year and replaced the 50 per cent capital gains tax discount with indexation for inflation and a minimum 30 per cent tax.

Perth’s market peaked in April this year, before the RBA hiked rates for the third time this year in May.

Capital city house prices plunged by 4 per cent in the three months to August 31, but in Sydney they plummeted by 5.4 per cent during the quarter, as equivalent Melbourne values fell by 4.6 per cent, Cotality data showed.

National Australia Bank sees home prices growing again next year but is forecasting a 10 per cent decline in Sydney this year and a 9 per cent drop in Melbourne.

It sees prices across the capital cities falling by 5 per cent in 2026 but still sees Brisbane prices growing by 2 per cent as values rose by 5 per cent in Perth and 1 per cent in Adelaide.

University of New South Wales economics professor Richard Holden, who was the architect of Labor’s plan to restrict negative gearing to new builds ahead of the 2016 election, said unaffordable housing would see younger generations become less community minded.

“If they feel that they don’t have a stake in their future, then that’s a very damaging thing. We need to be really concerned about that,” he told The Business Of podcast.

The Commonwealth Bank, like NAB and ANZ, is expecting another interest rate hike this year that would take the Reserve Bank cash rate to a 15-year high of 4.6 per cent but it would still be well below the record-high target rate of 17.5 per cent in early 1990.