Most independent experts say rents are unlikely to rise if negative gearing is restricted or removed. (Michael Janda)
So what would happen to rents if negative gearing were abolished or significantly cut back?
The debate is already on, with supporters of the present system warning that they would rise.
We do have one example in Australia's history. The Hawke Labor government briefly abolished negative gearing between 1985 and 1987.
In some cities, rents increased during those two years.
Andrew Gerber is an independent investor with nine investment properties in the Sydney metropolitan area.
"We saw what happened many years ago when Keating abolished it for a short period of time: rents went up straight away and it kind of distorted everything," he told PM.
However, Louis Christopher, who heads up property data crunching firm SQM Research, disagrees.
He said negative gearing was introduced following the Great Depression to light a fire under the market.
"Negative gearing was actually first introduced back in 1936, the Tax Act of 1936, and it was brought in at the time to try and stimulate the economy, which was still coming out of the Great Depression," he said.
"It was all about trying to stimulate building activity, and also making homes more affordable back at that time, and it's been with us ever since, so it's actually a concession that's been around for a very long time."
While introduced to boost housing activity, Mr Christopher said there is no clear evidence that the Labor government's policy to scrap negative gearing in the 1980s led to higher rental prices.
The demand for rental housing would fall by as much as the supply of it, and there would be no net change in the rental housing market.
"The truth is that the rental period at that time, across Australia, was mixed," he observed.
"There were some cities during this time which recorded falls in rents; there were other cities, namely Perth and Sydney, which were recording rises in rents above and beyond inflation."
Furthermore, Mr Christopher said Labor's current plan to leave negative gearing benefits on newly built properties makes this a quite different proposal to the 1980s policy.
"What Labor has actually put forward is about stimulating new supply of property, so we think that that would put a little bit of a dent in that whole argument that 'look, rents would dramatically rise', because what they're trying to do here is actually stimulate the supply side, and we think they would have some success in doing that," he added.
Rent rise arguments do not stack up: economist
That view is in line with independent economist Saul Eslake's argument.
The former ANZ and Bank of America Merrill Lynch chief economist said the economics of the rent rise argument simply do not stack up.
"Of course, if landlords were to sell their properties in response to changes to negative gearing, as defenders of negative gearing always allege, then you'd have to ask, 'who would they sell them to?'" he told PM.
Loading..."Not to other landlords of course, because they would be similarly deterred by the absence of negative gearing, but rather to would-be and frustrated home buyers, who, once they bought those homes would no longer need to rent.
"And therefore the demand for rental housing would fall by as much as the supply of it, and there would be no net change in the rental housing market, and therefore no particular reason to expect rents to go up."
However, property investor Andrew Gerber responded that those in the market will make their own individual decisions about rental increases, and may choose to raise rents.
"What I do believe will happen once the property is turned over and negative gearing is no longer applicable for the next owner coming on board, they will probably want to recoup some of their potential losses by increased rent," he argued.
Louis Christopher also warned that Labor's policy could have some unintended short-term consequences on property prices as well.
"The execution of it is going to be critical," he said.
"One risk with Labor's idea is that we could see a big run up in demand for existing properties, followed then by a large slump once we actually go into the period.
"So that's one risk that's there, and I would suggest to Labor that perhaps a scaling mechanism might work better to stop that type of boom-bust in the market."
By scaling mechanism, Mr Christopher means that existing investors may see their negative gearing benefits gradually phased out rather than completely grandfathered, or that the removal of negative gearing from established properties bought from July 2017 onwards be gradually phased in.