Treasury is forecasting house prices to go up by just 0.9 per cent for the year ending June 2022 — compared to a 17.3 per cent annual average change for the 2021 period.
Using CoreLogic Quarterly House Price Index, Treasury's Budget update predicts the Government's March housing package would significantly slow down skyrocketing price growth.
The changes included removing the interest deductibility loophole for investors of rental property and extending the bright-line test, which is being doubled from five years to 10.
"Annual house price growth continued to accelerate at the end of 2020 and into 2021, prompting the Government to introduce policy measures to address affordability concerns," the Treasury update stated.
However, it acknowledged that the overall impact of the Housing Package on the housing market was "uncertain and depends on various factors, including the final design".
"The overall result is that house price growth is forecast to continue, but at a significantly reduced rate compared to a scenario without the policy change."
That rise was thought to be impacted by low interest rates and population growth as borders begin reopening.
House prices are expected to gain a little more steam in following years, with a 2.1 per cent annual average change predicted for both the 2023 and 2024 year, and going up to 2.5 per cent for the year ending in June 2025.
The removal of interest deductibility on existing residential properties was expected to have the largest impact on the housing market and wider economy by significantly reducing house price growth.
It forecast that some property owners having higher tax costs may divest, leading to increased selling pressure and decreased demand in the housing market.
"Non-leveraged investors and owner-occupiers are expected to be largely unaffected by the policy change."
It said the extension of the bright line test was likely to have a smaller impact.