Labor has confirmed it will not back down on its policy to abolish negative gearing for new investors wanting to buy existing properties if it wins the federal election.

Key points: Labor says it will clamp down on negative gearing "within the first 12 months of a Labor government"

Labor says it will clamp down on negative gearing "within the first 12 months of a Labor government" Treasurer Josh Frydenberg says recent house price falls mean the policy would be disastrous

Treasurer Josh Frydenberg says recent house price falls mean the policy would be disastrous Tax and mortgage experts are divided on whether the policy would be a major threat or not

That was despite the latest figures revealing that housing prices had experienced their biggest drop since the global financial crisis, according to property analysts CoreLogic.

Darwin (-24.5pc), Perth (-15.6), Sydney (-11.1pc) and Melbourne (-7.2pc) were the capitals which had the sharpest falls since hitting their peak in the last few years.

Opposition trade spokesman Jason Clare said his party would clamp down on negative gearing "within the first 12 months of a Labor government".

Jason Clare confirms if Labor wins the election, it will restrict negative gearing within the first 12 months of government. ( AAP: Paul Miller )

The opposition had also promised to improve housing affordability by halving the capital gains tax exemption from 50 to 25 per cent.

"We want first home buyers to be able to get their foot in the door … to get their first place."

However, Treasurer Josh Frydenberg has used the CoreLogic figures as ammunition to slam Labor's policies.

"Now is the worst possible time for Labor's disastrous housing tax — which will ensure anyone who owns their own home will see their house worth less under Labor, and anyone who rents will end up paying more.

"It was a policy that was prepared at a different time, when prices were going up … [but] now prices are coming down."

The most significant factor behind the falling property market was tighter lending conditions imposed by the regulator, which made it more difficult for people to obtain mortgages.

Banks and lenders had acted far more conservatively than needed to restrict loan approvals. Their loans to interest-only borrowers had fallen to about 16.5 per cent of new lending, despite the banking regulator (APRA) imposing a 30 per cent limit.

In that regard, the Treasurer also urged the banks to "keep [their] books open".

They have a "social and economic responsibility to ensure affordable, accessible and timely loans to the broader public", he said.

"It's in the bank's interest, the economy's interest, and certainly it's in the public's interest."

Experts divided

However, opinion is divided on whether Labor's negative gearing policy will benefit the Australian economy.

Opponents of Labor's tax changes play down the impact of investors and their tax concessions in driving up property prices — yet they forecast dire consequences if the concessions are reduced.

Josh Frydenberg says Labor's negative gearing policy is better suited to an environment where property prices are rising. ( ABC News: Nick Haggarty )

Aussie Home Loans founder John Symond told ABC News "it could tip Australia into recession".

In addition, UBS's chief economist is worried about the effect the change would have on the economy.

"My concern would be that if you were to make a material change to tax policy at the same time as banks are tightening lending standards, it could exacerbate what's already a downturn into something more serious," he said.

Meanwhile, supporters are reluctant to admit the changes could lower housing prices — while claiming the existing tax arrangements played a major role in the property boom, driving up prices beyond the reach of first home buyers.

Professor Bob Deutsch, the Tax Institute's senior tax counsel, rejects the notion that introducing Labor's negative gearing changes is a major threat, particularly in a weakening property market.

"Obviously when interest rates are higher you get more negative gearing," Professor Deutsch explained.

"When interest rates are as low as they are at the moment, people positively gear and many of them do so because the rent exceeds the interest. Fewer people will be impacted in the current market."

He argued that many investors have already been driven out of the market by the banks' tighter lending practices, and that now is a better time to introduce the change.