But that's a discussion about who is causing the increase. Put that aside and investors are still paying these prices to buy an asset that yields miserable income (rent). So the questioin remains is it rent that is too low or have people paid too much for IPs?
You're always assuming that all investors are going to buy IP's with cr@p yields YM, and be heavily neg geared.
Why?
Haven't you been here long enough now to realise that there are different markets, different strategies and different levels of debt that a person can carry with their investments?
Most experienced investors are not gunna buy an IP with a 2% yield as a stand alone purchase. The inexperienced, or cashed up but with no financial smarts brigade might (plenty of them around); but they will disappear pretty quickly. Quite often they are the horror stories of "doing their nuts" that you hear about in the news.
The experienced investors may do it if they are confident there will be a subdivision possibility, they know a boom is about to start and they can do a flip in the near future (but this is more a trader than an investor), and/or they are rolling in excess income that they can use to hold it until such a time.
The reality is that when yields are bad, investors don't usually buy much; it's probably a boom time, and most of these buyers will be owner/occupiers, who cause most of the booms in the first place.
You may remember that investors make up a minority of the market - less than 1/3rd, and we are about trying to buy cheap; not push up the prices.
