Australia: how come we can't buy houses?

Australia current,y has the worst housing affordability of any developed country. In particular the major cities such as Sydney are plagued by continually rising housing costs, far above the rate of inflation. There has been talk of a housing bubble, where thousands if homeowners will be left with a property that is worth less than the mortgage they hold, however to date prices keep on rising.

The boom in housing costs goes back to the the introduction of  a 'first home owner's grant' more than ten years ago. Not only did this grant make it easier for people to raise the money for a house, the major banks and other lenders decided to accept this grant as 'savings' and so it was leveraged as part of a deposit, with the result that the loans made could be larger. People with larger home loans bid higher prices for housing, and the price rise cycle was established.

At the same time we have a tax system which includes negative gearing. This encourages people to invest in existing housing in order to write off interest payment against income tax. As a result, currently we have much more housing owned by landlords, and the bigger the loan, the more tax they can write off, so this price rise cycle is actually an advantage for housing owners. 

There have been many people comment that negative gearing does not create new housing, which was the rationale for its introduction some years ago. In addition it helps lock potential new home onwers out of the market. Politically however no government since Keating has had the courage to even discuss this issue for reform.