Without discussing the validity of HDTs, if the ATO outlawed them (not by creating new law but by creating legal precedent in its interpretation of existing laws: that's why the tax laws are so vague), some interest deductions will be disallowed. Going forward, losses are trapped in the trust (the same as with a family trust).
Effect on property prices? I would say not much. The majority of property investors only have one IP. I can't imagine many of those people (who only plan on having 'one property to live in, one property to fund retirement' anyway) would be using HDTs? They'd just buy in their own names.
Alex