Labor's take on improving housing affordability in Australia is not sitting well with many market watchers.

Labor's take on improving housing affordability in Australia is not sitting well with many market watchers, particularly its proposed policy to pay developers for building affordable rental homes.

Labor aims to lay out a 10-year plan to establish 250,000 new homes across the country over the next decade, 20,000 of which will be completed during its first term in the government if it wins the election. The plan is to give owners or managers of new homes $8,500 annually for 15 years as long as they lease properties for 20% below the market rent.

The rationale is to help low-income households secure affordable housing while at the same time allowing them to save for their own homes in the future.

In a report in The Australian, Grattan Institute’s John Daley questioned Labor's plan, saying it "would be pretty awful value if it is anything like the last one.”

The policy builds on the National Rental Affordability Scheme (NRAS), which was started in 2008. It provided incentives for investors to lease their properties below the market rate. NRAS attracted $12.9bn worth of private investment over the past decade and has resulted in 31,000 affordable homes.

Daley said the NRAS’s flat amount per dwelling only resulted in these developers building smaller accommodations in cheaper locations. Furthermore, a huge chunk of participating dwellings turned out to be apartments and studios.

"This is unsuitable for many of those that the program is trying to help. For example, a single mother with two or three children would probably not want a studio or one-bedroom accommodation," he said.

Centre for Independent Studies research director Simon Cowen shared the same sentiment, noting that the scheme would just be "a waste of money."

He told The Australian that the Commonwealth Rent Assistance is already doing the job of helping renters. He also believes that affordable housing should be dealt with at the state level.

"The first version of this scheme didn’t generate nearly as many houses as hoped — that is because these schemes don’t address the real issues blocking supply: state government taxes and charges, and local government planning laws," Cowen said.