Federal Treasurer Scott Morrison renewed his warnings against tampering with negative gearing in a speech given on Monday. He also urged more institutional investment in rental real estate and affordable housing for low-income earners to help ease the country’s affordability crisis.

With the federal government preparing its housing package for the May budget, Morrison wants to keep expectations realistic, noting that the latest budget cannot solve all of the nation’s housing affordability issues.

“There are no single or easy solutions, and the payback is achieved in some cases over a generation – not [via] electoral or budget cycles,” Morrison said.

Instead, the policy response on housing should be carefully calibrated, “lest we spark a negative housing shock that would undermine our economic confidence, negatively impact household consumption and retard economic growth,” he said. “The more than two-thirds of Australians who live in owner-occupied homes would agree that dramatically reducing the value of their home is not a good plan, and it is not the government’s plan.”

The overheating property markets of Sydney and Melbourne, in particular, have led to widespread calls for the federal government to soften its opposition to reforming negative gearing. So far, the government has chosen to dig its heels in. There is, however, internal debate in government circles about whether to alter the capital gains discount.

Morrison emphasised that the government’s housing policy must be comprehensive, because there is “no silver bullet” solution. To ensure success, the effort must involve all levels of government, with a strong focus on removing the range of obstacles restricting supply.

“We don’t claim instantly affordable housing,” he says. “Anyone making such claims would soon be found out and rightly punished for it.”

Morrison further noted that the rental sector had not escaped affordability issues, even though rents haven’t seen the same increases as house prices. Higher house prices are making it harder for potential homebuyers to enter the property market and also means renters are staying in the rental market much longer. This places added pressure on rents and availability, and places greater stress on lower-income households.  

More affordable housing was needed “for key workers such as nurses, teachers and police officers who can’t afford to rent or buy in the communities they serve and for those on low incomes, the disabled and the disadvantaged,” Morrison said.