Australia’s love affair with property is older than the nation itself. From the earliest days of settlement, land was the surest path to wealth and security, whether through pastoral leases, farms or suburban allotments. After the second world war, home ownership became a national ideal. The Menzies government actively encouraged owner-occupation through housing policies, infrastructure spending and access to suburban land, creating a property-owning democracy that became the envy of much of the world.

Over time, property became more than a financial asset. For millions of Australians, the family home became their largest investment, their retirement plan and their hedge against future uncertainty. Entire suburbs were built around that aspiration. Australians spent decades paying off mortgages, renovating kitchens, landscaping gardens and adding extensions. Property ownership became woven into the national character.

The obsession eventually evolved into a cultural phenomenon. Television programs turned renovation, interior design and property investment into mass entertainment. Auction results became front-page news. Hardware stores became weekend destinations. Australians followed house prices, renovations and property markets with the same enthusiasm previous generations reserved for cricket and horse racing.

That is why Australian housing policy has traditionally focused on increasing supply, improving affordability for new entrants and moderating price growth – not deliberately driving prices down. A government that engineers a fall in house prices is not simply reducing asset values. It is reducing the wealth of millions of households whose financial security is tied to the value of their homes.

It therefore takes an exceptionally ‘brave’ politician (in the Yes, Minister sense of the word) to meddle with the housing market. Yet that is what Treasurer Jim Chalmers has decided to do, framing a budget built on an extraordinary assumption that investors can be herded from one segment of the housing market to another without affecting confidence.

The official rationale for the government’s changes to negative gearing and capital gains tax was to reduce tax-driven demand for existing housing, redirect investment toward new housing supply and remove what Labor regards as ‘unfair’ tax advantages enjoyed by investors compared with wage earners.

The theory, if you can call it that, was simple. Reduce investor demand for existing homes, make it easier for owner-occupiers to buy, and encourage investors to channel their money into newly built housing instead.

The flaw in that thinking can already be seen in Caboolture, north of Brisbane. Queensland developer Vanderbilt recently completed 62 affordable apartments priced between $429,900 and $499,900. Every apartment was purchased by an investor and rented out within weeks. Having watched investor demand evaporate since the federal budget, the company has now abandoned plans for future projects in similar markets.

That example exposes the government’s fundamental misunderstanding. The Treasurer treated investors as speculators driving up the price of existing homes. In the real world, with which Chalmers seems to have only a passing acquaintance, developers build properties only if there is sufficient demand to achieve prices that will deliver a viable return on investment. Remove enough investors, and projects stop stacking up financially; that is precisely what is happening.

‘Three interest rate rises was bad enough, the war made it worse, and the federal budget was the straw that broke the camel’s back,’ says Tom Forrest, chief executive of Urban Taskforce, an industry association that represents property developers, landowners, investors and infrastructure companies.

The irony is clear. The government justified its ‘reforms’ as a way of making housing more affordable, but it has succeeded in discouraging investment in new housing supply, which will, over time, put upward pressure on both rents and house prices.

Lower-income Australians who are not candidates for home ownership will be hardest hit as rental properties are bought by owner-occupiers, new housing supply dries up, and competition for rentals intensifies.

People who rent apartments don’t compete with investors. They depend on them.

We’ve seen this film before. When Paul Keating abolished negative gearing in 1985, rents surged in Sydney and Perth before the policy was abandoned two years later.

Chalmers should know better. He devoted his PhD to studying the Hawke-Keating era, yet seems determined to repeat one of its most controversial housing experiments. Chalmers published his research in a book called Glory Daze. Given how little he seems to have learnt from Keating, perhaps a book on his own efforts as a treasurer might be called Dazed and Confused.

The government’s deal with the Greens to secure passage of the legislation through the Senate has made a bad situation worse. It extends the assault on property investment to self-managed superannuation funds by prohibiting new borrowing by SMSFs to acquire residential property. If the government genuinely wants investors to redirect their capital into new housing, why close off one of the few vehicles left through which that investment might occur? The answer appears to be that the real objective is not to redirect investment but to reduce it.

The deeper problem is not merely the loss of tax concessions but the growing perception that the rules are no longer stable. Australians who purchased investment properties, established SMSFs, or planned their retirement around long-standing tax settings did so on the understanding that the rules would remain broadly consistent. Each successive intervention reinforces the belief that any successful investment will eventually become a target for higher taxation.

That matters because housing supply is not created by government press releases. It is created by investors, developers, and lenders who make long-term decisions based on expected returns. If those returns become less attractive and less predictable, capital goes elsewhere.

Which raises an obvious question. If investors are withdrawing, apartment projects are being shelved and SMSF participation is being curtailed, who will finance the 1.2 million homes Labor says Australia needs? The government appears to assume that institutional investors and public housing programs will fill the gap. That is likely to turn out to be a heroic assumption.

The Albanese government seems to be only dimly aware of what its repeated rule changes mean for the property market and for the Great Australian Dream. As Keating discovered, Australians have a habit of sitting in suburban lounge rooms with cricket bats when politicians start playing games with their financial security. It’s another history lesson that Chalmers is likely to learn the hard way.