You might think that taking a policy to two successive elections without success - as Labor did with its changes to negative gearing and capital gains tax rules - means there's no real chance of reform.
But what if there are good reasons why the government itself might accept that something needs to change? After all, generous tax concessions that hit budget revenue but serve no useful purpose don't make much sense, regardless of who is in power.
We know that Treasury and the Reserve Bank don't believe that a Labor victory would have crashed the property market. And we know from documents obtained under Freedom of Information laws that Scott Morrison was open to reforming negative gearing when he first became treasurer. With some creative thinking, could a fresh approach to the problem win bipartisan support?
Here's how it might happen. Instead of restricting negative gearing to new properties, as Labor proposed, deductions could instead be subject to annual cap of $5000 to $10,000, as researchers at the Australian Housing and Urban Research Institute have proposed. Alternatively, deductions could be restricted to one or two rental properties. Both options are consistent with Morrison's argument that negative gearing is meant to assist "middle-income people" like nurses and teachers to build a nest egg.
The latest tax office data shows that in the four years from 2012-13, the number of individuals claiming an interest in three or more rental properties grew from 181,000 to 212,000, with almost 60 per cent reporting a loss. These landlords are either property rich or have made highly leveraged, speculative investments. It's hard to see why they should be encouraged to further speculation with tax benefits.
As interest rates have declined, though, so has the significance of negative gearing. The deduction landlords can claim - and the cost to government revenue - has fallen. This is where Labor's other housing policy comes in. Its plan was to cut the capital gains tax discount on rental housing from 50 per cent to 25 per cent. It received less attention during the election campaign, but is a more important factor in this era of low interest rates and low inflation.
The discount halves the amount of tax investors pay when they sell a property, as rough compensation for inflation's eroding effect on the value of the gain in the property's value. But when inflation is low the discount over-compensates investors, especially if they own a property for only a short time. According to the Grattan Institute, the discount "distorts investment decisions" by encouraging investors to focus on "capital growth rather than annual income".
Under Labor's proposal, investors would have been taxed on three-quarters of their capital gain rather than half - undoubtedly a fairer approach, and also a boost for government revenue.
Australia's generous tax treatment of rental housing has been feeding a speculative spiral that pushes up property prices while reducing rental returns per dollar of investment.
In that form, though, the idea is unlikely to win Coalition support. But Morrison himself has indicated a way out of this impasse. In the 2017 budget, as treasurer, he offered residential property investors "an additional capital gains tax discount of up to 10 percentage points" if they provided affordable rental housing for at least three years. In doing so, he showed how the capital gains tax discount could be modifed to achieve a social good - increased affordable housing - by a Coalition government.
It would be no great stretch for Morrison, this time as prime minister, to introduce a more substantial change that could have a positive effect on Australia's private rental market overall. Instead of offering a capital gains tax discount of 50 per cent after just one year, the government could phase in reductions according to how long a landlord has owned a property. A discount of, say, 20 per cent might apply after one year, a discount of 40 per cent after five years, and a discount of 60 per cent after 10.
This would be a fairer way of compensating investors for the effect of inflation. It would also be relatively simple to implement. More importantly, it would induce landlords to see residential property as a long-term asset rather than a short-term punt. It would be in their interest to seek out reliable tenants and offer them secure leases. Tenants who currently face precarious tenures - one of the worst features of Australia's private rental market - would gain greater certainty.
Australia's generous tax treatment of rental housing has been feeding a speculative spiral that pushes up property prices while reducing rental returns per dollar of investment. Landlords have prioritised flexibility over certainty, clinging to the right to terminate a lease at short notice so they can sell the property at any time to realise a profit.
It doesn't have to be this way. Germany is just one country that does this differently: it offers residential property investors a capital gains tax discount, but only after they have owned a property for 10 years. Landlords have an incentive to offer secure, long-term tenancies rather than stringing tenants out month to month.
The average tenancy in Germany is 11 years, and renters can feel secure in their homes. In Australia, by contrast, average tenancies are just a year or two. Adjusting capital gains tax could help to change that equation.
Morrison set a modest precedent for change when he was treasurer. As prime minister, with his political stocks high, he should act now to make housing taxes fairer.
- Peter Mares is author of No Place Like Home: Repairing Australia's Housing Crisis (Text Publishing, 2018).
- Published in partnership with Inside Story.