Australia is now seeing perhaps the starkest example in recent history of how tax changes affect human behaviour and the economy as a whole.

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Since May's budget announcement of changes to capital-gains tax and negative-gearing concessions, housing prices have fallen 5 per cent. Various industry predictions say they will fall up to 15 per cent. The Commonwealth Bank, the nation's biggest home lender, has it at 9 per cent.

Using the CommBank's estimate, that is more than total federal government annual revenue and about half Australia's annual gross domestic product.

It is a massive butterfly effect caused by tax changes which have not even come into effect yet.

Humans flock from higher-tax environments to lower-tax environments. It is just fear and greed.

We knew that the tax system was causing people to "invest" vast amounts of money in housing, driving up prices and shutting young people out. And simple logic says that to make houses more "affordable", the price of them had to come down.

At last, the government did the obvious after everything else and every other explanation for the housing crisis fell short. It was good policy even if the government did not sell it well.

But as I wrote at the time of the budget, "The political question is whether people buying are more appreciative than sellers are angry. My guess is yes because there is another element to the equation. Many people have expressed disquiet for a long time about the way many home-buyers have been shut out by investors subsidised by the taxpayer.

"These people recognise that that problem had to be dealt with and will probably accept falling house prices.

"And fall they will. After a quarter century of this warped capital-gains policy there is bound to be some blood on the floor in correcting it. But it had to be corrected. So, yes, there will be some individual losers, but overall Australia will........

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