The aftermath of the federal election has seen a lurching change in the prospects for Australian property prices. Loading On top of the defeat of Labor’s proposed changes, the banking regulator on Tuesday announced that it will relax the stress test lenders must apply to potential borrowers. Instead of testing borrowers' capacity to service repayments at a 7 per cent interest rate, the regulator would like lenders to stress-test borrowers at an interest rate 2.5 percentage points above the prevailing mortgage rate, currently about 4 per cent. The move recognises that interest rates have headed substantially lower than when the rule was first introduced in 2014.

But, alongside other moves to relax restrictions on investor lending, the effect will be to enable borrowers to borrow more. And history shows that when Australians are allowed to borrow more, we do so, pushing up house prices in the process. Also this week, Reserve Bank governor Philip Lowe confirmed the central bank would give serious consideration to an interest rate cut at its meeting in two weeks. Importantly, the Reserve appears to have revised down its internal calculations of the official jobless rate that Australia can sustain without fuelling price pressures. It now thinks our jobless rate can sustainably have a "4" in front, and will cut interest rates to help make this happen.

Previously, the Reserve has been reluctant to cut already record-low interest rates, for fear of escalating home prices. Reserve Bank governor Philip Lowe suggested that rates could be cut next month and that governments needed to look at structural reform. In the current environment, the Reserve’s actions may not spark the same double-digit price gains of previous years, but they will certainly put a floor under future price falls – to the detriment of aspiring buyers. And then there’s the Morrison government’s new scheme, announced in the dying days of the campaign, to help a limited number of first home buyers get into the market on just a 5 per cent home deposit. It probably surprises Morrison as much as anyone that this policy will now become reality.

Instead of waiting years before they can scrounge the 20 per cent deposit required to avoid paying lenders mortgage insurance, which can cost in the region of $10,000, the government instead will effectively go guarantor for about 10,000 first-time buyers, allowing them to avoid this cost. Such "lucky" borrowers will be able to enter the market with supersized loans on which they'll inevitably pay thousands of dollars more in interest than if they had saved a bigger deposit. Everyone knows that the best thing you can do to really help first home buyers is to reduce the cost of housing. But, in reality, today’s policymakers have little stomach for allowing that to happen. Since the peak of the boom, the price of the median Sydney home, both houses and apartments, has shed 14.5 per cent, according to the latest figures from CoreLogic.

Prices remain, however, 21.1 per cent higher than five years ago. Illustration: Matt Davidson Credit: In Melbourne, the median home price has given back 10.9 per cent, but remains 24.2 per cent more expensive. Of course, many, perhaps most, Australians will breathe a sigh of relief at this new policy response to put a floor under the property market. Two-thirds of Australian households, after all, own their home, either with or without a mortgage.

Many young Australians, too, are keen to enter the market and keep the perks of previous generations. Why should they be denied access to the generous tax discounts that proved so lucrative for previous generations? The only problem, of course, is that not everyone can afford the price of admission to this great property-owning dream. By moving to limit price falls, policymakers will also assist in deepening inequality in Australian society, increasing a gulf between property "haves" and "have nots". Even among property owners, those who can afford to buy into well-located, city areas will likely enjoy supersized gains, compared to those on the outer fringe.

We may yet find the collective will to reshape our tax rules to discourage excessive investment in property or to find alternative sources of economic growth, beside debt-fuelled consumption. But we haven’t yet. Mark my words, some day – perhaps in the not too distant future – we’ll be wringing our hands again about the housing affordability crisis and how sky-high property prices are locking many young Australians out of the housing dream. And on that day, we’ll be able to look back, and remember the week policymakers collectively decided to help fan the flames of our property furnace by throwing new home buyers onto the fire. Jessica Irvine is a senior writer.