A long-held truism across the federal Parliament is that Australian voters like rising property prices so much that any-self interested politician would be silly to propose plans to curb it.

But as average income earners in Sydney, Melbourne and Brisbane are increasingly priced out of the suburbs they grew up in, there’s a growing push to shift the debate towards affordability.

Greens housing spokesperson Max Chandler-Mather echoed the plight of first-home buyers in The Australian on Tuesday, calling for house price growth to be brought back in line with income.

“Our goal, our stated goal, is to stop house price growth,” he said.

“So zero per cent growth to give wages a chance to catch up.

“The net effect would be a stabilisation of house prices.”

The Greens are looking to push debate about generous tax concessions for property investors back onto the agenda before the next federal election as Labor faces scepticism about plans to build 1.2 million new homes to tackle the housing crisis.

They have proposed phasing out negative gearing and abolishing capital tax discounts; policies that experts warn have helped inflate home prices and also cost the federal budget tens of billions.

But what might happen if those tax breaks were abolished, and how would both first-home buyers and existing home owners approaching retirement be potentially affected by the shift?

Tax breaks and affordability

The bottom line is that it’s unclear exactly what would happen to home prices if existing tax breaks were abolished or wound back.

Modelling of one scenario by the Grattan Institute in 2016 predicted a two per cent slip, while others estimated smaller or larger shifts, based on assumptions about how the market would respond.

Australian Housing and Urban Research Institute (AHURI) director Michael Fotheringham said that while the effects are uncertain, a “delicate balance” is required to avoid unintended issues.

“To what extent can you put the genie back in the bottle?” Fotheringam said.

“If you take the long view, house prices over the past three decades have grown much more than wages … that’s the fundamental problem.

“[But] if you fiddle with tax incentives all kinds of things happen. Some of it you anticipate, some of it you don’t.

“Some tax reform is appropriate.”

Australia Institute chief economist Greg Jericho explained that tax reform isn’t about crashing prices, but instead rebalancing growth in home values against incomes.

“No one is talking here about wanting house prices to crash or even fall, but we need incomes to go up by more than house prices,” Jericho said.

“If you want housing to become more affordable, incomes have to go up faster than house prices.”

In that sense, reforms to negative gearing and capital gains discounts could assist first-time buyers in finding affordable housing, explained RMIT University professor Angel Zhong.

“The removal of tax benefits for property investors could reduce demand, possibly leading to price stablisation or decreases,” Zhong said.

But if reforms did trigger a fall in prices, then existing home owners could be worse off.

“Home owners nearing retirement who planned to sell investment properties might see lower returns due to the abolition of CGT discounts, potentially affecting their retirement funds,” Zhong said.

“If house prices stabilise or decrease, the value of their property assets might not grow as much as anticipated.”

The devil would be in the detail though, Fotheringham explained, with the timeline for winding back tax breaks or potentially grandfathering for investors being key to how prices would shift.

One reform modelled by AHURI, for example, wouldn’t scrap tax breaks but would cap negative gearing claims and reduce the rate of CGT discounts.

Economist Saul Eslake said that property tax breaks are “excessively generous” and have helped drive up prices in recent decades.

“An extended period of house prices rising by less than disposable incomes would be a good thing,” he said.

“Although I’ve also said that big falls in property prices, though good for aspiring home buyers, would be a bad thing from a broader perspective, as demonstrated by the GFC.”

Inequality and taxpayer costs

House prices are just one way to understand the issue, however, with questions about affordability in the context of intergenerational wealth inequality carrying a wider set of risks.

There’s also the massive cost to taxpayers in foregone revenue, with the opportunity cost of both negative gearing and capital gains tax discounts set to balloon to $165 billion within a decade.

Jericho said reform is needed to deliver a “fairer” housing market where prices aren’t inflated by investors who can bid up values, thanks to a combination of negative gearing and capital gains discounts.

The risk is that more and more Australians are priced out of property markets, particularly across major cities, leaving them unable to build lifetime wealth in the way their parents did.

“We’ve got a taxation policy which distorts the housing market, making it harder for people to buy a home,” Jericho said.

“We’ve got a system which is working completely in the wrong way. Taxation should not be about entrenching wealth or entrenching inequality.”

Fotheringham said that while there’s “no silver bullet” to solving the housing crisis, governments must seriously pursue tax reform if the country has any serious hope of improving affordability.

“It’s less a question of ‘Should you do tax reform?’ and more about ‘How you do it in the political economy we have?’,” Fotheringham said.

“This is a step we should take, but it’s not the whole thing. “