Up to $500m will be made available for new homebuyers to improve affordability if a Labor government comes to power in the next election.

Kevin Rudd pledged to put together a housing affordability fund to save new homebuyers up to $20,000 on a home purchase in a speech to the Adelaide Press Club recently.

Rudd, speaking days after he chaired the National Affordability Summit in Canberra, said the federal government had failed to fund urban infrastructure such as water, sewerage and roads properly, meaning the cost is being passed onto new homebuyers. He said this, along with an unfair taxation and rates system, was increasing the cost of homes in Australia's cities by $20,000 or more.

The fund will help 50,000 new homebuyers across Australia during the next five years, if a Labor government is elected.

Rudd said: "It will form the basis of a new partnership between the Commonwealth and local governments to tackle housing affordability. Under Labor's plans, local governments will apply through a competitive process to receive grants to cover some of the cost of new housing infrastructure."

The Housing Affordability Fund will target areas where the lack of infrastructure acts as a barrier to the release or development of land, where high dwelling growth is forecast in Greenfield or infill areas and where there is already a demonstrated lack of infrastructure.

The announcement was welcomed by housing bodies such as the Housing Institute of Australia (HIA) and the Real Estate Institute of Australia (REIA).

Ron Silberberg, managing director, HIA, said: "Levies, taxes, charges and planning delays are adding tens of thousands to the cost of new dwellings. This funding will have a significant impact on reducing the new dwelling price allowing more aspiring home owners to afford a home of their own."

Graham Joyce, president, REIA, said: "This proposal is good news for consumers, providing that the efficiency dividend can be identified and verified. Enhancing supply and removing inflated charges and taxes on housing will help aspiring home owners get into the market."