Negative gearing will result in house prices going backwards and improving housing affordability. House prices are purely a function of demand and supply. Investors add to demand. Due to tax advantages houses are more affordable for them than owner-occupiers. This pushes the demand curve to the right and causes prices to increase.
If negative gearing is abolished, there will be no tax incentive to hold loss making property; investors will rush to sell their houses; supply increases and supply curve moves to the right while the demand curve moves to the left (as fewer investors will want to buy investment properties).
There may be unintended consequences too; banks could be on the hook for increased bad debts.
IMO, the idea that negative gearing increases housing supply for renting is only partly correct; renters are forced out of the housing market as prices are unnecessarily inflated by investors; that's why rental yields on investment property are generally low. Negative gearing should only be permitted on new property, for a period of say 10 years after which it lapses.
