Property Meister,
This has been debunked several times before. Here's a recent example that I contributed in another thread:
http://www.somersoft.com/forums/showthread.php?p=663515#post663515
Their argument is that we should maintain a constant price to income ratio which ignores the fact that
incomes are beating inflation by 1.35% pa. So, of course, all that extra spare income is put into housing thereby increasing the ratio steadily over time. Its an exponential, not a linear relationship.
Your link talks about the loan to income ratio which I presume to mean average single income, so that also doesn't allow for the increase of dual income families. It also doesn't allow for the easing in credit rules. An increase in acceptable LVRs means more leverage can be employed at the same amount of cash flow outgoing and also push up prices.
Looking at a simple income to price ratio in isolation completely ignores the other critical drivers of affordability. Affordability is a factor of disposable income, number of incomes and amount of leverage. Put all of them together and prices can and will rise faster than a mean single income.
It really is a simple concept but we are dealing with the media here...
Cheers,
Michael