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The Australian Council of Social Service (ACOSS) said it was wrong to claim that the Hawke government's restrictions on negative gearing in the 1980s resulted in rent increases.
“The main reasons for rent increases at that time were higher interest rates and a share market boom which diverted investment from rental property,” the council said in a recent report.
“Even so, this only happened in Sydney and Perth. Lending to rental property investors still rose by 42 per cent across Australia.”
ACOSS said negative gearing and capital gains tax together cost the Budget $7 billion a year and fuel housing price booms.
Chief executive Cassandra Goldie said negative gearing is “shrouded in myth” that need to be dispelled so a “sensible discussion” can begin.
"Negative gearing and the tax break for capital gains don't improve housing affordability; they make it worse by fuelling home price booms like the one in Sydney right now.
“Less than one-tenth of negatively geared housing investments are for new properties, the other nine-tenths bid up the price of existing housing,” she said.
Ms Goldie said it is also false to claim that negative gearing mainly benefits ‘mum and dad' investors on middle incomes.
"The reality is that over half of geared housing investors are in the top 10 per cent of personal taxpayers and 30 per cent earn more than $500,000.
"This is a longstanding problem and it's time it was fixed,” she added.