A quote of disputable origin says, “Buy land, they’re not making it anymore.”

Many Australians followed its lead, driving house prices to more than double from the mid-1990s in real terms, way ahead of incomes. Where once houses sold for two to three times the annual income, now, in a capital city, it’s almost six to seven times.

In recent months, though, something has started to shift. Led largely by declines in Sydney and Melbourne, where house prices are down 11 and 10 per cent, respectively, there’s been a national fall of 8.7 per cent over the past 12 months.

National Australia Bank has called it the biggest housing downturn since World War II. Writing in The Australian, James Kirby argued it’s only the fourth worst. Suffice it to say though, something significant is happening. To date, the house price decline in 2019 is even more marked than in 2009, after the global financial crisis.

And there is more to come. This week, ratings agency Moody’s predicted prices across Australia would fall 7.7 per cent in 2019, double the drop it previously published.

The situation is worse in Sydney and Melbourne, where price falls of 9.3 per cent and 11.4 per cent are predicted.

Moody’s warning follows similar cautions from the International Monetary Fund, Standard and Poor’s and others about the direction of Australia’s housing market.

AMP Capital’s chief economist, Dr Shane Oliver, says Moody’s predictions are “very similar” to his own expectations.

“I’m looking at another 7 per cent or so, which is fairly similar to what they’re saying nationwide,” he says. “I wouldn’t rule out up to 15 per cent in some areas of Sydney.”

Oliver recently revised his predictions for price declines from the market’s peak in 2017 to an eventual 25 per cent fall, down from his earlier predicted 20 per cent fall.

While Labor’s policy may cause a bubble in new housing, it is unlikely to crunch house prices or tank the economy.

In 2016, Jodie Johnston and her partner took a loan out on their family home in the Brisbane suburb of Stafford.

“The plan was always to buy an investment property a year or two after,” says the 28-year-old. “We had an idea about the payments so we sat down with our broker six months ago about the refinancing options but found out we couldn’t refinance.”

Stuck in their current loan, Johnston says that if interest rates go up, or if something else were to happen, the couple would likely have to sell the house. If she got a pay rise or the house increased in value, she says, things would be different. However, Australian wage growth is anaemic: only 2.3 per cent in 2018, barely above inflation at 1.8 per cent. The household debt-to-income ratio in Australia is close to 200 per cent – nearly the highest of any country in the world.

“I struggle to meet my half of our mortgage payments,” Johnston says. “If rates did rise any further, we would get into serious trouble.”

The Reserve Bank of Australia’s cash rate though, which is at 1.5 per cent, has never been so low, nor has it stayed unchanged for so long. The last time Australia had an interest rate rise was October 2010. The rates charged by banks are somewhat higher, with the average rate at 3.6 per cent.

However, in the past few years, the Australian Prudential Regulatory Authority (APRA) has required banks to assess borrowers on a floor rate of 7 per cent, to ensure they can repay their loans if, or when, times get much tougher than they are today.

This has worked in concert with the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which have pushed the banks to take a closer look at who can borrow how much.

Brendan Coates, a research fellow at the Grattan Institute, points to these two changes as the reason house prices are falling, but argues they are having unintended consequences.

“It’s pretty clear that the application for the responsible lending rules combined with that 7 per cent buffer is causing some problems now,” he says. “If you make it harder to borrow, the person who loses is the person who can no longer get a loan.”

Views are mixed on how Labor’s proposal to restrict negative gearing to new properties will affect the housing market.

The shadow treasurer, Chris Bowen, defended Labor’s plans this week, after criticisms were levelled in The Australian Financial Review that its savings were overstated by between $2.5 billion and $8 billion due to inaccurate assumptions about how many investors buy existing and new properties.

“Are they really saying [tax revenue] will be $6.2 trillion under Labor versus $6 trillion under the Coalition?” Bowen said. “Is that the basis of their election campaign? Bring it on.”

A spokesperson for Bowen’s office said Labor stood by its costings.

Cameron Kusher, Australian research lead for property analyst firm CoreLogic, thinks the negative gearing changes will push prices down and cause distortions.

“We are already seeing a lot of off-the-plan units whereby the valuations are coming in below the contract price,” he says. “So, we can see that inherently new stock is more risky than old.”

Brendan Coates says any price impact “would be small” because Labor’s election prospects have seemed so strong – and any impact has “already been priced in” as investors have largely left the market.

“The impact of the negative gearing changes would be smaller than what it was at the peak of the boom,” says Coates.

The impact of negative gearing on the property market has been “exaggerated”, says Shane Oliver. He adds that reforms are necessary, but restricting the policy to new buildings may distort the market.

“The risk is that it leads to investors piling into new buildings as opposed to old buildings and distorts investor behaviour,” he says.

According to analysis from the Parliamentary Library of Australia, the seats in which the greatest proportion of residents negatively gear are Durack in Western Australia, and Mitchell and Reid, both in New South Wales.

Durack, a safe Liberal seat held by Melissa Price, is the highest negatively geared electorate in the country.

Dr Nick Economou, senior lecturer in Australian politics at Monash University, says that Labor’s negative gearing policy will not swing the election.

“Negative gearing is specific to a certain subset of people who’ve got money to purchase properties, an older demographic,” he says. “Look at some of these seats; they’re not the seats where it’s going to matter.”

While Economou believes Labor will “comfortably” win the May 18 election, he says voters aren’t looking to the opposition’s policies, specifically.

“The key factor is the dysfunctionality of the government, the Liberal Party and the National Party,” he says. “They have spent six years arguing over the things that people in swinging electorates aren’t interested in.”

At the peak of the housing boom, prices in Sydney and Melbourne shot up so fast, and so high, that recent declines have only now brought them back to August 2016 levels. So while Labor’s policy may cause a bubble in new housing, it is unlikely to crunch house prices or tank the economy.

But there are flow-on effects, even from the falls we have already seen.

“When people are becoming more conservative, they start to cut back their purchases or high-end type purchases, big-ticket purchases like cars,” says Craig James, Commonwealth Securities’ chief economist. CommSec data from the past decade shows a steep run of luxury car sales, which is in line with house price growth.

More concerning, though, is the potential hit to the construction industry. In Victoria and NSW, one in 10 people work in construction. In many ways, it was the answer to the mining boom’s mining bust, as workers from the mines headed back east.

And if past downturns are anything to go by, it’s likely the shift in housing prices will last years, not months.

Analysis by the Grattan Institute has found that in the past 40 years, periods where prices have flatlined have lasted between seven and 14 years.

Beyond the impact on industry, retailers, borrowers and homeowners, there is the likely impact on state governments.

Stamp duty – the tax paid when a house is bought and sold – is the single largest source of direct income for the states. But fewer houses sold, and selling for less, means less stamp duty for governments.

Victorian Treasurer Tim Pallas has already warned of “tough choices” in the upcoming Victorian budget.

Of course, the boom shut huge numbers of Australians out of the housing market – and for many the prospect of house prices cooling is welcome. The generation that endured the early ’90s “recession we had to have” are perhaps the biggest winners of the past decade’s boom, if they bought into the market before it began.

According to the Household, Income and Labour Dynamics in Australia (HILDA) study in 2017, home ownership for every single age demographic in Australia had declined over the previous 10 years. Particularly affected were people in their mid-20s and late 30s and older women.

Professor Roger Wilkins, co-author of HILDA, tells The Saturday Paper that falling rates of home ownership coupled with tenuous rental situations has done damage to communities.

“You tend not to invest in a local community or property if you can’t be sure you’ll be there long term,” he says.

“It’s a misnomer,” says Brendan Coates, “to think that the generation who had to deal with 17 per cent interest rates [in the early ’90s] have it tougher than today. In the long run, they made out like bandits.”