A new study suggests home ownership would increase and around 75 per cent of households would be better off if negative gearing was scrapped.

A report by researchers at Melbourne University presented to the Reserve Bank of Australia shows close to three quarters of households could own their own homes if the policy was axed, and that house prices would drop by about 1.2 per cent.

It found rents would rise “only marginally”.

The modelling was presented to a Reserve Bank workshop last month, and publicly released late last week.

It finds that eliminating negative gearing would create an overall welfare gain of 1.5 per cent of gross domestic product and lift ownership rates to 72.2 per cent of households, the highest level since 1991.

Ownerhsip is currently at 66.7%, the lowest level since the mid-20th century.

“We find that removing negative gearing would result in lower house prices, higher rents and homeownership rate ... the welfare analysis suggests that eliminating negative gearing would lead to an overall welfare gain of 1.5% for the Australian economy in which 76 per cent of households become better off< the report authors state.

“However, the welfare effects are heterogeneous across different households.

“Renters and owner-occupiers are winners, but landlords, especially young with high earning landlords, lose. Improvements in homeownership rate are observed predominantly among young and middle-aged households who are relatively poor.”

The researchers say their paper is “preliminary and incomplete”.

Australia’s negative gearing regime – in which losses from an investment property Are claimed as a tax deduction – is unknown in comparable economies globally.

Just a few OECD countries, including New Zealand and Japan, have largely unrestricted negative gearing systems like Australia’s.

Amid fierce political bickering over the future of negative gearing, federal finance minister Kelly O’Dwyer has unveiled draft legislation for the establishment of the National Housing Finance and Investment Corporation, which she says would administer a $1 billion national housing infrastructure facility to help increase housing stock.