Prime Minister Malcolm Turnbull has refused calls from members of his backbench to rethink tax breaks for property investors.
Malcolm Turnbull is staring down a backbench revolt over negative gearing as Labor sinks its teeth into the highly-charged political debate over housing affordability.
Several Liberals including Sydney MP John Alexander - who chaired a recent inquiry into housing affordability - are urging the Turnbull government to rethink its opposition to reining in negative gearing ahead of the May budget.
But the prime minister is refusing to budge on property investment tax breaks, arguing building more dwellings is the key to curbing house prices.
"There is a tendency for people, particularly on the left, to overlook the fundamental reality that the reason housing affordability has deteriorated is simply because demand has consistently been exceeding supply," he told Neil Mitchell on 3AW on Friday.
Shadow Treasurer Chris Bowen said simply boosting supply was a failed solution, arguing house prices in NSW were more expensive than ever despite years of record residential construction.
Any housing affordability reforms without changes to negative gearing were a sham.
"We don't want scare campaigns, we want action and policy," Mr Bowen told reporters in Sydney.
"We want to work in partnership to deal with housing affordability because it is something which all three levels of government have a stake in fixing and improving."
Urban Infrastructure Minister Paul Fletcher insisted housing affordability was not top of mind as he stood beside Gladys Berejiklian on Friday, who this week declared the issue her top priority as she took over as NSW premier.
"I suspect the people of Sydney have a lot more that they are thinking about on a daily basis than that," Mr Fletcher said.
Sydney's median house soared 10 per cent in the past year to a record high $1.1 million, a Domain report released this week revealed.
Finance Services Minister Kelly O'Dwyer meanwhile defended the government's retention of negative gearing, saying there was no silver bullet to tackling property prices.
"All levels of government have to work together to make sure that people can afford to purchase a home and can afford to rent a home," she said.
"The worst thing that could be done is Labor's proposal, which is to smash negative gearing, to actually take so many people out of the market who currently use negative gearing at the moment."
The vast majority of people harnessing negative gearing were middle-income earners, the prime minister said.
"There are vastly more teachers and police doing this than high-flying lawyers and tax accountants."
Mr Bowen again promised negative gearing reforms under a future Labor government, but warned thousands of first home buyers would miss out in the meantime if action was not taken sooner.