Homeowners who bought in Perth two years ago are most likely under water on their investment right now.

But despite falling house prices, aspiring buyers aged under 35 are still facing major struggles to buy a house.

A report from the Committee for Economic Development of Australia (CEDA), called Housing Australia, found policy settings that favoured one generation over another have helped create the widening disparity on home ownership nationally.

Perth-based contributing author Professor Rachel Ong, who is deputy director of the Bankwest Curtin Economics Centre, said negative gearing, changes to capital gains tax and the introduction of HECS fees for tertiary students had all contributed to make housing expensive for young people.

"It's the way that policy has been structured that's created this intergenerational tension. It is the way that policy has been structured that has actually pitted the young against the old," Professor Ong said.

Between 1982 and 2013, the home ownership rate for 25 to 34-year-olds in WA fell from 54 per cent to 40 per cent.

During that period, mortgage debt as a proportion of earnings for home owners in the same cohort rose significantly.

"[WA's] mortgage debt to income ratio has more than doubled from 112 per cent to 255 per cent over the last 20 years," Professor Ong said.

"Despite the fact that we're seeing some recent softening of the housing market in WA, it hasn't actually undone the ... increase in housing stress among young people who live in WA."

Perth's median house price in June was $518,000, a $34,000 discount compared to the same month in 2015.

But that decline has done little to improve long-term affordability, given house prices doubled in the decade from 2005 to 2015.

"For those who actually manage to get in, they're ... heavily indebted and so they are suffering from great housing stress," Professor Ong said.

"There's also increasing numbers of young people who are having to contemplate lifetime renting."

Parental wealth plays increasing role

The report also points to the growing inequality between young people who have access to equity and those who do not.

Professor Ong said an increasing number of young people — many who receive financial assistance from their parents — own multiple properties, while others are unable to get into the market.

"Between 1982 and 2013, the proportion of those aged 25 to 34 who own more than one property has risen slightly, from about 1.3 per cent in 1982 to around 3 per cent in 2013," she said.

"At the other extreme, amongst those aged 25 to 34, those who own no property has actually increased as a share, from about 43 per cent to about 66 per cent, so we're seeing growing numbers of young people at either extreme.

"Those who are able to purchase multiple properties tend to be those who are more likely to have access to parental resources, so the role of parents' wealth is actually increasing over time."

Inaction could see home ownership become 'precarious'

Professor Ong said federal and state governments needed to consider a range of policy reforms, such as reducing the size of the capital gains tax discount or abolishing stamp duty and replacing it with a land tax.

Without such reforms, Professor Ong said there would be a "drastic change" in the housing prospects of future generations.

"Home ownership has always been thought of as a really stable sector that provides a lot of security in retirement," she said.

"If we don't do anything now, what we're going to start to see is home ownership becoming increasingly precarious."