It's tempting to think home prices are soaring because there aren't enough homes.
But that can't explain the sudden takeoff from about the year 2000, the sudden take-off from about 2013, and again now - against expectations - the stratospheric take-off in the wake of the COVID-19 recession.
That's 12 per cent of our houses and apartments empty - used as holiday homes and second homes, or waiting for tenants.
If there really weren't enough homes for people who wanted them, it would be more than property prices soaring; so too would be rents.
Instead, overall rents have been barely moving - growing even more slowly than slow-growing wages - for half a decade.
For the half-decade from 2016, a half-decade in which Australia's population grew by more than 1 million, Australian rents barely moved.
The supply of places to live in has kept pace with the demand for places to live in, but the supply of places to own has not.
More landlords, more tenants
If that sounds odd, remember that people want to own houses for reasons other than living in them.
Since about the year 2000 big numbers of Australians (and foreigners) have wanted to buy them in order to rent them out - they've wanted to become landlords.
Twenty years ago, only one in 15 of us were landlords. It's now one in 10 - more than 2 million of us.
To get those properties (other than where they've built them) they've had to outbid at auction the people who would have bought them to live in.
They've been helping create their own tenants, while pushing up prices.
We're chipping away at Menzies' legacy
From when Robert Menzies stepped down as prime minister in 1966 right through until the end of that century, around 71 per cent of Australian households owned the home they lived in - one of the highest rates in the world.
From about 2000 the cost of buying a home shot up from between two and three years' household after-tax income to between three and four.
What appeared to set things off was a decision by prime minister John Howard in 1999 to halve the headline rate of capital gains tax. Not that the committee he asked to investigate the idea recognised the possibility at the time.
The Ralph review recommended that half, rather than all, of each capital gain be taxed, rather than the portion above inflation as had been the case since capital gains were taxed.
The change would "encourage a greater level of investment, particularly in innovative, high growth companies".
A rush into property rather than hi-tech companies
Rather than buy shares in innovative companies, Australians bought rental properties like they never had before. If they bid enough, they could borrow enough to make sure the interest charges exceeded their income from rent, giving them annual losses they could offset against wage income that might otherwise be taxed at doctors and lawyers rates.
There was nothing new about negative gearing. It had been permitted from the beginning. What was new was the opportunity to later sell the property at a profit, knowing only half of the profit would be taxed.
Investors could offset all of their losses and be taxed only half their eventual gain.
Pretty soon, more than a third of the money lent for housing each month went to landlords. For several dizzying months during 2015, it was 45 per cent. First home buyers struggled to compete.
In 2016 then treasurer Scott Morrison raised the prospect of winding things back, saying negative gearing had led to "excesses".
APRA cleared up what our leaders could not
Labor went to two elections promising to do just that and the Coalition came out in support of the practice in public, while behind the scenes the Prudential Regulation Authority used its power over lenders to force lending to landlords down, eventually getting it back down below 25 per cent of new housing loans.
APRA succeeded in taking the pressure off prices where politicians couldn't.
But that's far from the whole story. There are other more deep-seated reasons why house prices are climbing, and they too have little to do with demand for accommodation.
Prices took off again from about 2014, shifting up from between three and four years' household income to between four and five years'. That time it was Australians getting richer after years of mining booms and being able to borrow more cheaply.
Houses in general mightn't be a good investment (there being a regularly-increasing supply) but houses in prime positions were in fixed supply, there being only so many good locations.
And then it fed on itself. The father of modern economics, John Maynard Keynes, described investing as a game in which the best strategy is not to put money into what you think is worthwhile, but to put money into what you think other people will think is worthwhile.
It's happening again
He spoke of a third degree, where "we devote our intelligences to anticipating what average opinion expects the average opinion to be," and added there might be fourth, fifth and higher degrees.
It's happening again. With mortgage rates at new extreme lows and wealthier Australians having come out of the crisis with their wealth intact, it makes sense to do what others are doing and push up prices in order to buy before others push them up further in order to buy.
It's nothing to do with a shortage of housing, but for many it will push home prices further out of reach. That's because in Australia housing is two things: accommodation and a form of speculation.
- Peter Martin is a former economics editor of The Canberra Times. This article first appeared on The Conversation.