Hasbeen has already touched on some of the reasons why the major investment houses wouldn't touch rental housing with a very long stick, namely high risks and low returns.

However, where high risk is concerned, another is REGULATORY risk. - Continual interference in the market by governments and their QANGOS and always resulting in disruption and unforeseen negative consequences.

While I respect the fact that some say NG should be scrapped altogether, my question to them is why?
You cant just not like something for no reason, because its quite obvious you don't use this tax break yourselves.
The other question you should seriously ask yourselves, is where do you think the houses for renters will come from if investors don't invest in housing? Remember, if an investor owns three houses/units, that's at least three that are renters. So I ask again, where will these people live?
Someone also mentioned NG being applied to both interest payments and capital gain. That's simply not true, because you don't pay CCT until you realize a profit. However, NG does cover for all expenses, as well as holding costs during periods of non income.
Finally, how many multiple unit complexes do you think would exist, housing many renters, if not for the tax breaks NG has provided and, do you think this common investment strategy, resulting in thousands of rental units will continue should NG be abolished for used houses being bought for redevelopment.
I should make it clear that Im not arguing with you, just pointing out some facts to be considered.

rehctub, the very obvious reason why many people believe negative gearing should be scrapped altogether is that it enables people to avoid paying the full rate of tax on the money they earn. Which means everyone else has to pay more tax.

However, as Alan Kohler pointed out on ABC News, homeowners (being exempted from land tax) get a much bigger tax break.

Your question "where do you think the houses for renters will come from if investors don't invest in housing?" is based on a false premise; already a third of housing investors aren't negative gearing. Even if negative gearing were abolished, it's likely there would still be many people investing in housing, though the price of it would go down (also making it more affordable to buy so there'd be less need for rentals).

There's also the option of public sector housing corporations, which would be better value to taxpayers than relying on tax breaks (except of course to those taxpayers taking advantage of the tax breaks).

One wonders then Aiden, if this NG is so useless, why has it not been knocked on the head long ago?

I am with Rehctub here. I would worry that available cheaper rental properties would become more difficult to find, as did happen in Perth and Sydney when Labor axed it in 1985.

Suseonline, whether or not it's useless, governments have been keen to be seen as pro investment.

Were cheaper rental properties really harder to find in Perth? ISTR hearing an analysis claiming the effects in Perth were completely different to in Sydney.

Aiden, one of the most common developments of recent times has been the acquisition of an older home, on a larger lot, which is then redeveloped into multiple units/townhouses ect, all made possible and affordable through the use of NG.

The result being that instead of one older, low yielding rental, there are now multiple new dwellings housing multiple tenants which has gone a long way towards addressing our much recognised under supply of housing.

Are you suggesting this is not a good idea?

You also say many older houses are not negatively geared, and you are right, however, most older rentals purchased post 83 were in fact negatively geared and only through inflationary increases in rents have they become positively geared, which brings me to my point of making laws that state that in order to have a property NG, that property must return to profit (positively geared) within a time frame, say ten years.

This will effectively stop investors rorting the system whereby they keep funding new investments with equity, to the point whereby they own ten investments with a L2V ratio of 80%.

This is where NG has become out of control.

Public housing.
Public housing should perhaps be public/private JV where the land, is publicly owned with private dwellings, ALL in the form of relocatables so they can be moved to areas of high demand should the need arise.

We also need to put a stop to the single mother with four kids to three fathers getting preference over whole families as this puts a huge strain on that sector.

Wish for what you may Aiden, but negative gearing is here to stay because without it our economy will crumble.