Election 2016: How Malcolm Turnbull's doorstop drew attention to the housing affordability crisis

• Full budget 2016 coverage
• PM takes gearing off table
• Turnbull government sends more mixed messages on tax

Malcolm Turnbull has ventured deep into Sydney suburbia to announce, once and for all, his government will not make any changes to negative gearing or capital gains tax in next week's federal budget.

From the front garden of a family home in the southern neighbourhood of Penshurst on Sunday, he claimed Labor's policy to limit negative gearing to newly built housing and reduce the capital gains tax discount would drive down home values, drive up rents and discourage investment.

"That's why we won't have a bar of it," Mr Turnbull said.

However, the story of the family visited by the Prime Minister and Treasurer Scott Morrison actually draws attention to the acute housing affordability problems in cities and how tax policy is distorting behaviour.

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison announce there will be no change to negative gearing.Credit: Michele Mossop

Like many young people in Sydney and Melbourne, Julian and Kim Mignacca's first move into the housing market was to purchase an investment property, not a home to live in. They rented out – and negatively geared – the flat in Cronulla and lived with parents instead.

As Mr Mignacca chatted to the Prime Minister and Mr Morrison in his living room on Sunday morning, he said that strategy was the "only way" he could accumulate the savings to buy his family home.

It is an increasingly common story in our biggest cities.

The number of twenty-somethings moving out of home has declined sharply over the past five years, Australian Bureau of Statistics figures show, especially in Sydney and Melbourne.

Illustration: Matt Golding

I reported on this demographic trend recently and interviewed a father in Sydney's Sutherland Shire who had two adult sons with full-time jobs still living in the family home. He had encouraged the young men to take the opportunity to "set themselves up with an investment property or two".

Grattan Institute chief executive John Daley said the way young people were buying housing, but not living in it, showed the system was not working efficiently.

"Why would we want to encourage that as an outcome?" he said. "It makes no sense.

"We have a system that is encouraging investment rather than home ownership."

Opinion polls show public concern about the cost of housing has increased markedly in the past few years. In Sydney, about 8 per cent of new home loans are going to first-time buyers, less than half the long-term average.

Labor believes its plan will help first-time buyers by winding back generous tax benefits that give investors an unfair advantage.

However, Mr Turnbull said now was not the time for such "risky and damaging proposals".

Housing policy – especially the fate of first home buyers – is guaranteed to be a key election battleground.