I don't agree that this policy is fair because it fails to take into account the impact of interest. The scenarios are faulty. A person who buys a $300,000 house is not getting a free benefit because they are paying interest which is often the equivalent of the rental they would be paying. On the other hand, a person who invests in a house and leases it earns rentals that offset the interest they pay. Effectively they therefore often pay no costs (rent = interest), no tax and get a tax free capital gain at the end.
My suggestion would therefore be to require all people who want to take a deduction for interest on a residential property to register that property into a scheme (a bit like registering for GST) because they are obviously buying the property as a commercial venture. Any gains on the value of that property upon future transfer (including transfer out of the scheme) would be subject to tax. This scheme would automatically exempt those people who are buying their property for their family home and yes it would exempt the really rich who can buy a property and not rent it or live in it, but I don't think those purchases are behind the the significant increase in investment properties.
Do you like this suggestion?