Negative gearing is in place to increase the supply of rentals. If it is removed then that would put pressure on an already tight supply. The Canberra rental market for instance comes to mind where there's so little supply prospective renters actually need to offer more than asking to secure a place in some cases. Housing costs in regional vs city has nothing to do intrinsic values. Like all things it's worth what people are willing to pay. And people are willing to pay more because higher paying jobs are based in cities. If you want another example, used car prices aren't rising because of the intrinsic value of the metals in them, it's because of supply and demand.
