A landlord has warned renters could face massive rent hikes if the Albanese government pushes ahead with major changes to capital gains tax and negative gearing in next week's budget.

Stephen O'Brien, who rents in Melbourne's eastern suburb of Doncaster Heights but owns an investment property interstate, said he would increase the rent from $865 to $1,235 a week if the negative gearing tax break is abolished.

His proposed $370 weekly increase would add almost $20,000 a year to his tenants' housing bill.

Mr O'Brien said if his tenants could not afford the increase, they could find somewhere else to live.

'Our investment property is on the coast in a high-demand location, within walking distance of a patrolled beach,' he said.

'I know we can obtain a much higher price. The fact that I can negative gear it with the current rental means everyone wins – tenants and us.

'If there are no deductions, why run my investments at a loss? So who crashes out from Treasurer Jim Chalmers' reforms? It won't be me.'

In an interview with the Daily Mail, Mr O'Brien fumed: 'Why would I be running it as a loss if there are deductions to claim.

'What's the point – wait for the capital appreciation over time only to be substantially slugged on that as well?

'Where is the incentive to provide private sector rental housing?'

He wrote a letter to Treasurer Jim Chalmers outlining exactly how he would respond to the changes, but says he has not received a reply. 

The comments come amid mounting speculation the Albanese government could target negative gearing in the federal budget on May 12, despite the Prime Minister previously insisting Labor had 'no plans' to wind back property investment incentives.

Negative gearing allows property investors to offset losses - including loan interest and maintenance costs - against their taxable income.

For example, if a landlord earns $45,000 a year in rent from an investment property but spends $60,000 on mortgage interest, council rates, repairs, insurance and maintenance, they are running the property at a $15,000 loss.

Under negative gearing rules, that $15,000 loss can be deducted from their taxable income, reducing the amount of income tax they pay.

Supporters argue the policy encourages investment and boosts housing supply, while critics say it inflates house prices and overwhelmingly benefits wealthier Australians.

The government is also considering changes to the capital gains tax system.

Currently, Australians who hold an asset for more than 12 months only have to pay tax on half of the profit they make when they sell it under the 50 per cent capital gains tax discount.

However, Labor is reportedly considering reducing that discount to 25 per cent, or scrapping it altogether and returning to the pre-1999 system, where capital gains were adjusted for inflation instead.

For example, if an investor bought a property for $800,000 and later sold it for $1 million after owning it for more than a year, they would currently only pay tax on $100,000 of the $200,000 profit.

But if the discount was reduced to 25 per cent, they would instead pay tax on $150,000 of the gain - significantly increasing their tax bill.

But while landlords can attempt to pass on those costs to tenants, there is no guarantee renters will pay dramatically increased prices.

Domain reported last month that vacancy rates remain near record lows and supply is still extremely tight, but rent growth has stalled in some markets as households hit the limit of what they can afford.

Under Victorian laws, landlords must give at least 60 days' notice before increasing rent, can generally only raise rents once every 12 months, and tenants can challenge excessive increases through VCAT.

The landlord's warning quickly sparked fierce debate online, with many Australians arguing renters were already at breaking point.

'The reality is that rents have been pushed so high that in a lot of areas they have pretty much hit the ceiling in terms of capacity to pay,' one person wrote on Reddit.

Others argued landlords would struggle to service mortgages if properties sat vacant because renters simply could not afford the increases.

However, some claimed the market could still bear significantly higher rents.

'The market can afford more. Trust me. The amount of income you see in rental application will shock you,' one wrote.

Housing Industry Association general manager Jocelyn Martin warned scrapping negative gearing would have 'disastrous' consequences for renters during an already dire housing shortage.

'Removing negative gearing, with minimal grandfathering, would lead to a 46,000 reduction in homes built, a loss of over 4,300 construction jobs and a fall in GDP of $2.3 billion,' she said.

'Investors finance up to two in every five new homes built - private rental investment is part of the solution to our housing crisis, not part of the problem.

'Australia is in the midst of a housing and rental crisis, with rental vacancy rates across the country barely above 1 per cent.

'Taxing investors who fund the development of more housing only worsens affordability for the renters that depend on these properties.'