It's incredibly frustrating to see the hard time housing is being given in Australia.

Back in mid-2012, the mother off all resource construction booms was coming to an end. Enter new home construction, which put on the longest and biggest building cycle in Australia’s modern history. Within and outside the industry, that boom generated millions of jobs across the sub-contracting, single trader, small business, medium business, volume builder, and large manufacturer and supplier community. An aggregate sum of activity worth some $150 billion per annum was born.

There was something in it for all political parties, really!

Negative gearing provisions – an indelible part of Australia’s tax system, rather than a tax ‘break’ as some ignoramuses refer to it – played its part in helping Australia escape its first recession since the early 1990s. To put it another way, the negative gearing of residential property was an integral component in Australia’s housing industry keeping the economy out of the quicksand.

Yet in some quarters these days, residential property investors are treated like lepers. To hear some speak on the matter, you would think all these investors negatively gear – but they don’t. Their properties are negatively geared forever, but the fact is that after five or six years maximum those properties that were negatively geared turn positive. Everybody who owns investment property is believed to be a rich toff gouging out the eyes of lower/middle income Australia. The substantial number of middle income families, teachers, nurses and the like who have one investment property are entitled to feel somewhat peeved at this falsehood.

It’s about time we junked the negative gearing criticisms and then appropriately discard this long-standing component of Australia’s tax system as a sideshow when it comes to addressing Australia’s housing affordability challenge. For people who don’t like that, get out more and learn about Australia’s property and residential construction markets.

During the latest new home building cycle – again, the longest and largest in modern Australian history – investment in new housing peaked at between 30 and 40 per cent of all housing investment. It still accounts for over 20 per cent of all residential investment. Investment activity, aided by negative gearing provisions, helped save this economy from recession.

The above figures might seem high because a prominent argument against negative gearing is that it doesn’t materially add to new housing supply. Bollocks! There is an often touted myth – call it a ‘false fact’ – that less than 10 per cent of residential investment lending goes to new housing. Wake up, naysayers! It’s not a full count. The ABS measures all lending to owner occupiers for new property, but they don’t do this for investors where the ‘count’ is only partial.

Think about it intuitively if you are suspicious. We’ve just been through a very big construction cycle for detached housing and the largest boom in medium/high density construction in our history. Does it seem feasible that domestic investment accounted for less than 10 per cent of that? Of course not. We all know that foreign investment played a massive role in the current new home construction cycle, but it didn’t weigh two and a half times King Kong! Domestic investment in new residential property was a vital and substantial participant and negative gearing was part of that.

So let’s give investors a bit of a break. They are not lepers. Most of them are just trying to make their way in the world. Many of them have traditionally been teachers or shift workers of all sorts of professions who decided to take the punt and work extra shifts as a deliberate decision to fund their investment. If you think that point is inaccurate then again, you need to get out more.

A first home buyer couple in Sydney can spend one-third of their after tax income paying for the government taxes and charges levied on the property they bought. Where is that headline when the ignoramuses in the room are telling us that negative gearing is the Darth Vader of Australian housing?

Some participants in the housing affordability debate really need to take a Bex so they can settle down and reconfigure their focus. Demand and supply side factors are both important, but right now it remains a fact that new housing is the second highest taxed large sector in Australia’s economy. To put in more bluntly, building a roof over the heads of Australians is taxed higher than all but one other sector in the Australia economy. That’s got bugger all to do with negative gearing, but it has everything to do with why Australia has a housing affordability challenge.

It’s all about the cost of supply. If you don’t address that, you get nowhere. Love or hate negative gearing (and capital gains tax concessions), the need to reduce supply costs comes first.

The Rudd Labor government recognised this fact through its housing infrastructure fund policy. The Henry Tax Review, which was commissioned by the Rudd Government, reached the same conclusion that reducing the costs of housing supply has to come first. I don’t like, nor agree with all aspects of the Henry Tax Review, but it’s a bloody good read for us economic sops! It remains the best starting blueprint this country has for serious taxation reform. It would be hard, unpopular work, just like all serious economic reform is and the report comes from the opposite side of politics to the current government. So nothing will happen.

The next time somebody says to you that we have to cut negative gearing and capital gains tax concessions because that is the answer to Australia’s housing affordability challenge, ask them this question: what would that do to prevent Australians’ paying around 40 per cent of the final price of a new house in taxes and charges to local, state and federal governments?