There is an obvious problem with the way Australia's housing market works.

First-home buyers are often competing at auction against investors who enjoy tax advantages that owner-occupiers do not. The investor can borrow, rent out the property, deduct losses against other income and then, historically at least, hope to make a sizeable profit through capital growth when they sell.

The first-home buyer just wants somewhere to live.

So the instinct behind Treasurer Jim Chalmers' negative gearing changes is understandable. In fact, it's more than understandable. There is something deeply distorting about a market in which taxpayers effectively help subsidise investors bidding against people trying to buy their first home.

The government's answer is to limit negative gearing to newly built homes. Existing investment properties held before Budget night are grandfathered. But, over time, new investors buying established properties won't be able to negatively gear them.

The theory is clear enough: stop subsidising investments in existing dwellings and redirect investor demand into new supply. The hope being that it becomes easier for new home buyers to snap up existing properties, while investors help lift much-needed supply by purchasing new builds.

That sounds neat enough, and it may even work. Professor Richard Holden, Harvard-educated and one of Australia's most respected economists, has advocated a version of this model for years, which gives the idea more intellectual credibility than the usual political slogan dressed up as tax reform that you might expect Chalmers and the Prime Minister to wave around.

But good policy design still has to survive contact with the real world, and this is where the potential unintended consequences worry me.

Take the old red-brick apartment block in inner or middle-ring suburbs. For decades, these have been classic investor stock. Not glamorous, not new, often not especially spacious. But they are the kinds of properties many renters can afford, and they are also the kinds of properties investors have tended to buy and sell.

Under the new model, investors will have less reason to buy into them, because they won't be able to negatively gear the asset. First-home buyers, on the other hand, will have more of a chance come auction time - which is a big part of the point, as far as Labor is concerned.

If the reform means some established apartments shift from investors to owner-occupiers, the government will call that a success. But what happens to the renters who used to live in those apartments?

The answer is not as simple as saying they become first-home buyers. Some might; many will not. Lower-income renters aren't necessarily in a position to purchase just because investor competition is reduced, especially in a climate of rising interest rates. They may still lack enough savings for a deposit, notwithstanding Labor's new deposit scheme. They may still fail serviceability tests, which don't go away. And they may still be priced out of the buying market, even if price growth slows.

So the stock changes hands, but the people who most need rental housing may not be the ones who benefit. There will be overblown scare campaigns about this coming from vested interests, but logically there is some reason to worry.

That is the first risk: a policy designed to improve access to ownership may reduce access to the particular kind of rental housing lower-income tenants actually use. It would certainly be an ironic perverse outcome for a Labor government.

The second risk is that investors don't behave the way Treasury hopes (and has modelled) that they will.

Labor wants investors to move from established housing into new builds. In the Budget papers, plenty is made of the fact that more than 80 per cent of property investments are in existing dwellings. The government wants to change that. It is supply-side logic. If investors can still negatively gear new apartments or newly constructed dwellings, capital should flow into additional housing rather than simply bidding up the price of existing stocks.

But investors will assess risk, return, tax treatment, construction quality, body corporate costs, vacancy risks, location and capital growth prospects.

Some may buy new apartments, certainly. But others may decide the numbers no longer work in their favour and leave residential property altogether. They may move into shares, commercial property, managed funds or other assets where interest costs remain deductible if borrowed money is used to earn assessable income.

If that happens, the reform doesn't simply redirect investment into new supply. It pushes some investors out of residential property altogether. That may help first-home buyers at the margins, but it does not help renters in the short term.

This is where the politics and the economics can pull in very different directions. Politically, it is attractive to say investors should stop buying established homes and leave them to owner-occupiers. Economically, the rental market still depends heavily on private investors owning properties and leasing them out. Low-income renters are far less likely to be able to afford new-build rents. Does that leave them without homes? Does it ward investors off new builds that might not have sufficient demand to match rental returns that are worth the spend?

Australia doesn't have anything like enough institutional rental housing to replace older-style negatively geared investment properties currently being rented out. We do not have the public housing stock. We don't have a mature build-to-rent sector big enough to absorb such a shock. So when investors exit, the rental consequences could be catastrophic.

The third complication is the new-build incentive itself. The Treasurer told me directly in the Budget lockup that simply knocking down a house and rebuilding it would not qualify. The policy is aimed at adding to supply. A vacant block with a new house would qualify. A house knocked down and replaced by a duplex or apartments could qualify because supply increases. But replacing one dwelling with one new dwelling does not do the job, and can't therefore be negatively geared by an investor.

Again, that is logical. The policy goal is about additional homes, not subsidising renovations or replacements. But it also narrows the field. Investors looking for negative-gearing opportunities will need to buy into genuinely new supply. That means the policy's success depends not just on tax settings, but on planning systems, construction costs, developer feasibility, labour shortages, infrastructure and the willingness of buyers to purchase new stocks at the prices required to make projects stack up.

Tax policy can point capital in a direction, but it can't (by itself) make apartments cheaper to build. Which brings us to the fourth issue: prices.

If investors retreat from established properties, price growth in that part of the market may slow dramatically. It may even fall in some places. For aspiring first-home buyers, that's great, at least at first. For existing owners with large mortgages, it is far less appealing. For investors who remain in the market, it changes the equation, too.

Negative gearing has always relied on a kind of bargain: lose money on cash flow today, make it back through capital growth tomorrow. But if capital growth weakens - and don't forget, it also gets taxed more heavily now courtesy of CGT increased in the Budget - the case for carrying losses weakens as well.

This matters even for new builds, because it might weaken demand for buying in among investors who look to other asset classes away from property. Investors don't buy tax deductions for their own sake. A deduction softens a loss; it doesn't turn a bad investment into a good one.

The government's hope is that reducing investor demand for established housing will improve affordability while preserving incentives for new supply. Perhaps it will, but the path from tax reform to cheaper homes and lower rents is not straightforward. It runs through investor behaviour, construction markets, rental demand, credit conditions and the very different housing needs of buyers and renters. And don't forget about high inflation and rising interest rates.

All of which is why the unintended consequences within these Budget changes deserve scrutiny, even from those who support the reform's objectives in principle.

There is nothing wrong with trying to stop first-home buyers from being outbid by tax-advantaged investors. There is also nothing wrong with shifting incentives away from speculation in existing homes and towards new supply. But the key question is whether the policy creates enough new rental housing before it dries up rental options among existing dwellings.

If the Budget changes work, Chalmers may have landed one of the more important housing reforms in a generation. If they don't, the results become more complicated to assess. That is the housing reform trap: the people helped by the policy may be visible at auctions, but the people hurt by it may be harder to see - renters in older apartments, waiting for supply that may or may not arrive.