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The federal government could improve housing affordability and save the budget up to $60 billion in one fell swoop, according to senators Jacqui Lambie and David Pocock.
The crossbenchers are pushing for the government to overhaul the generous tax concessions provided to property investors through capital gains discounts and negative gearing.
The call comes after new modelling from the Parliamentary Budget Office (PBO), commissioned by the two senators, found reducing those concessions could save the federal budget between $15.6 and $59.9 billion over the next 10 years, while also leading to a drop in house prices.
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Pocock said that extra funding could be directed into increasing Australia's housing supply.
"The housing crisis is so widespread and so severe we need governments pulling every available lever to increase housing supply and affordability," he said.
"Tax reform on its own won't solve the housing crisis but it can be a powerful tool to drive new supply and should be on the table for sensible debate."
The PBO modelling examined five different options for winding back the tax concessions, all of which included so-called "grandfathering" provisions – that is, exemptions for existing property investors from the changes.
It found housing supply would improve and prices drop as a result of overhauling negative gearing and capital gains.
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"Immediately after the policy start date, investor housing demand would be likely to fall, reflecting that potential property investors would have brought forward their purchases or would otherwise switch their investment towards other assets," the PBO wrote in its analysis.
"Property prices would decline, while other asset prices, such as those of Australian shares, would increase.
"Over time, asset prices would be expected to return to their baseline growth levels, although there would likely be a permanent level shift in asset holding."
The Greens have also called for capital gains and negative gearing overhauls to address the housing crisis, but both the opposition and government have stood against it.
Some have attributed Labor's reluctance to change the tax breaks to its defeat at the 2019 election, when it adopted a policy of changing negative gearing before slumping to a shock loss.
Lambie, however, said the government should be open to the "sensible" changes.
"I think most Australians would agree that we need to fix the housing crisis and negative gearing is part of the problem," she said.
"But protecting the mum and dad investors and retirees who have invested in housing must also be part of the solution.
"Because this Labor government got their arses kicked in the 2019 election, they won't talk about fixing negative gearing.
"Senator Pocock and I have done the work and I hope the treasurer and the prime minister will be brave and take this opportunity to consider these sensible reforms."
