Why 1.7 million landlords could be wrong

Sure, at this stage the buyer and seller of the property are both satisfied. The seller is happy with the price he's received, and the buyer is happy with the price he's paid.

However, as our example shows, the buying and selling of houses has actually had a negative impact on the economy because the shoemaker has packed in shoemaking. The town will now have to import shoes from another town - which isn't necessarily bad, but what can our town export in return? Not houses.

The shoemaker is now gambling on someone being prepared to pay a higher price for houses in the town. If they stop doing that, what happens?

So, not only is housing unproductive but it simultaneously takes resources away from elsewhere in the economy. Rather than the shoemaker investing in leather and shoehorns, he's using all his capital and resources on buying houses and selling them to someone else.

That harms the leather manufacturer and also the shoe buyer as there is no one in the town to take the leather and turn it into shoes.

The lure of making money from houses has taken money and resources away from the manufacturing industry and other industries and instead invested it in housing.

And that's exactly what Australia's banks have caught on to. You can see it in their lending numbers. They've tapped into the idea that property prices always go up and are therefore helping to pump up the property bubble.

They've seen the soaring house prices over the last 30 years and are now determined to keep the market going. As far as they're concerned there's less risk in housing because they know what the attitudes of consumers are towards it.

But make no mistake, contrary to popular belief, that doesn't mean a bubble won't pop.

As the example above shows, the ability to make money from the buying and selling of houses is all based on the willingness of someone else paying a higher price - the Great Fool Theory we believe it's called. Without that the profits disappear.

Look, don't take my word for it, think about it for yourself. Think over the numbers. How does the buying and selling of a house contribute anything to an economy? I'll have something else to say on that in a moment.

But let's leave our fictional town and return to reality. The Australian Financial Review (March 25) and The Weekend Australian Financial Review (March 27-28) laid bare the desperate story behind property investing, and the confirmation of what we've said all along, that property investors invest solely in the belief that house prices always rise.