A new report into housing affordability has slammed governments over the past two decades for creating a mess by taking easy options rather than addressing the real problem of supply.
The Grattan Institute think tank warns housing affordability is getting worse with young, low-income families the worst hit in trying to buy home.
And those lucky enough to get a mortgage are finding it harder to pay it off given loans are larger and wages growth is low.
The Institute's chief executive John Daley says matters will only get worse if interest rates were to rise by two percentage points.
"It's bad, it's getting worse," Mr Daley told AAP summing up the outlook for housing if nothing is done.
The report released on Sunday says boosting housing supply will have the biggest impact on affordability, even if it will take time.
It says the states have not done a great job in planning and they need to allow more housing to be built in both inner and middle-ring suburbs.
They also need to replace stamp duties with general property taxes, adding the Commonwealth can help with financial incentives for these reforms.
Mr Daley said limiting negative gearing and reducing capital gains tax will help in the short term but won't help nearly as much as getting housing supply right.
"If you got rid of capital gains tax and negative gearing you might have some money to bribe the states with," Mr Daley said.
Unlike federal Labor which wants to limit negative gearing to new properties, the institute instead wants investment losses written off against other investment income, rather than wage and salary income which the present policy allows.
It also wants a reduction in the capital gains tax discount phased in.
Mr Daley said home building has not kept pace with strong immigration.
If state governments are not prepared to reform their planning systems, Mr Daley said the Commonwealth government may have to consider tapping the brakes on Australia's migrant intake.
"But we are not suggesting that is the best outcome," Mr Daly said, adding you want to get the planning right while maintaining a strong immigration program.
