In the period thereafter rents in Sydney and Perth surged higher, until the old legislation was restored in September 1987.
As you can see below, Cabinet Papers show that over the 12 months to June 1985 Perth had a vacancy rate of 2.4 percent, which is close to the "comfortable" 2.5 to 3.5 percent rule of thumb range as determined by the Real Estate Institute of Australia (REIA).
Sydney's average vacancy rate in the year to June 1985 was somewhat tighter, although not chronically so, at 1.4 per cent.
Vacancy rates also fell in Melbourne, but only marginally so by comparison, from 2.0 per cent to 1.9 per cent.
Unlike many other cities, Melbourne was in the midst of a massive boom in real house prices.
In nominal terms house prices in Melbourne screamed higher from $65,000 in 1985 to $109,000 by 1988, an incredible jump of 68 per cent.
Unsurprisingly the net result was a huge surge in net interstate migration from Victoria, more than quadrupling from just 3,340 in the year to June 1984 to a then near-record 14,423 in the year to June 1988.
Population growth in New South Wales was well over 50 per cent higher than that of Victoria in 1985, implying a very different dynamic in the respective rental markets of Sydney and Melbourne.
Brisbane had high vacancy rates in 1985 of above 4 per cent and although these declined a little rents were not unduly impacted, whilst population growth in all other cities was so slow by comparison that pressure on rentals was necessarily more muted.
With Australia having since embarked upon on a huge population growth programme since that time, the same dynamic is not true today, however, with ongoing population growth dramatically stronger that it was in 1985, in Victoria's case by a factor of an enormous 2.4 times.
Far more pertinently, comparing the property markets of 1985 with those of 2015 is akin to comparing chalk and cheese, leading to an arguments of a similarly sieve-like consistency.
Concentration of investors
Naturally enough, therefore, these are also the very same suburbs which would see real rents explode higher were negative gearing rules to be tinkered with again.
In a large and relatively mature inner capital city market, with its many itinerants leading to frictional vacancies, vacancy rates simply will not fall much lower than that today.
It is true that any resultant rental growth would be less dramatic in nominal terms today with inflation well under control and sitting comfortably within its target 2 to 3 per cent range, while rental affordability might also play a restricting role.
However, with rental growth nationally set to track below the rate of inflation for the foreseeable future, it is very easy to envisage that a scrapping of the prevailing negative gearing legislation would lead to a jump in inner suburban rents in real terms.