Labor MPs were hosing down reports on Tuesday evening that its parliamentary caucus was split over a push to dump tax breaks for real estate investors, but a wider party showdown on the politically charged issue is now just months away.

Both government and Greens sources said they expected the government’s signature $500-million-a-year housing fund to be defeated in the Senate.

Before even being formally pronounced dead, the coming fallout from the defeat of the Housing Australia Future Fund has sparked an internal debate, media speculation and, for some in Labor, a call to return to the drawing board on housing policy.

“The government’s position is very clear and it’s a position for which we received a mandate at the 2022 election, and I’m someone who keeps the commitments that we made,” Prime Minister Anthony Albanese said on Tuesday.

But amid soaring rents and warnings the ALP is losing touch with renters, a source confirmed the issue was all but certain to be on the agenda at the ALP national conference in August, the party’s highest representative body.

Single biggest tax break

At an estimated $24 billion, tax breaks for real estate investors represent the single biggest tax break affecting the federal budget’s revenue streams, according to modelling released by Treasurer Jim Chalmers this year.

Labor backed a policy limiting negative gearing only to new homes during the 2019 election campaign when it was seized upon as part of a negative campaign that cost it a victory.

It was also the party’s policy when it won a surprise 14-seat gain in the 2016 election.

“The world is very different today,” said Labor MP Jerome Laxale, who won the north Sydney seat of Bennelong last May.

“It’s five years since Labor had a face-to-face national conference.

“I would welcome a robust debate on housing policy, particularly on what role the federal government should play on the fair and equitable delivery of housing and leading reforms on renters’ rights.

“A secure and affordable home is something that Labor governments should always be fighting for.”

Mr Albanese said that party conferences are routinely contested affairs, and motions merely being debated are no indication they will be adopted.

The amount of potential revenue taken out of Commonwealth coffers through negative gearing was projected to soar by one-third, or $6 billion, this year after interest rate hikes were expected to inflate investors’ losses, bringing the total cost of the concession to over $24 billion.

About one-third of the tax benefit accrued to the top 10 per cent of income earners; the total value of the tax break was worth $3.6 billion to an estimated 1.3 million Australian investors.

Dr Chalmers said last week changing the tax had not been considered a priority by the government in the recent federal budget which instead increased rent assistance subsidies.

The most detailed study on the impact of a policy change on the housing market, published in 2021, found scrapping the tax break would reduce house prices by 1.5 per cent. 

Redbridge pollster and former deputy campaign director of the Victorian ALP, Kos Samaras, was among those urging a change of policy to thwart a challenge on Labor’s left at the next election.

“Labor will need to listen to its next generation if they are to avoid being outflanked by the Greens,” he said.

“The Greens may lack pragmatism, but they are cutting through on this issue.”