I fear that would have the spruikers out in force and there would be some stuff getting built in questionable locations just for the tax benefits.
I think you are absolutely right. Recently I tried to explain to someone that it is impossible to get depreciation deductions except in respect of an expense that you *have already incurred* and it was like talking to a brick wall. The fact that the tax man claws half of capital works deductions back (admittedly in the future so you capture all the time value of the deduction after losing the time value of the expense) in the form of CGT also went over their head.
I went through a similar exercise to show that the NPV of NG deductions on a $500k house bought today at current interest rates on 80% LVR was about $10k - i.e. if you pay more than $10k too much for a property to capture NG benefits then you have done yourself a disservice. At 10% interest rates that NPV balloons out to a massive $30k under reasonable assumptions of what CPI would be is interest rates were 10%.
Depreciation, capital works allowances and NG are a big help in terms of cashflow early on, but assuming you can swing an investment from a cashflow perspective, they almost never turn a red light into a green light.
But large cohorts of people on both sides of the NG/anti NG argument can't see this. The result of a move to increase capital works deductions back to, say, the 4% available between 1985 and 1987 would almost certainly be malinvestment in housing.
In general going into a business because of some perceived tax advantage is a mistake. Design you business to make the maximum profit (and hence pay the maximum tax!) but make sure you take advantage of any tax incentives that are offered once you have made your decision.