Why 1.7 million landlords could be wrong

It's should be the same with housing.

However, thanks to leverage and the ingrained impression that house prices always go up, housing has changed from being a “reward” for productivity to being treated as the source of productivity - it is of course, nothing of the sort.

It's not helped by all the ridiculous stories about buying a home being the "Australian dream", and "rent money is dead money", etc ...

But this attitude explains why housing is now seen as a leading indicator. How many times over the past year or so have you heard economists looking for positive signs from housing? Almost every month from what we can recall.

There's a simple reason for that. And it's exactly what happens with every asset bubble. Buyers overestimate future price rises and scramble to get in early. You saw it with the dot-com boom, and you're seeing it with the housing boom - "buy now before it's too late."

The overestimation leads to anticipatory buying. Only, not everyone can afford to pay up in advance to get onboard so they have to borrow in order to get a piece of the action. This pushes prices up further and necessitates further borrowing.

Again, does that sound familiar?

In reality and absent price and market manipulation, housing should lag the economy not lead it. Housing is the reward paid for by the productivity of the economy, it's not the driver of the economy itself.

The idea that the housing market can lead an economy out of recession, or to grow the economy is false. Housing is a consumable item. When it is bought or built it is consumed at that point. It provides no further benefit to the economy.

To claim it does is false.

If anything, a positive housing market indicates one of two things. Either people are rewarding themselves for their past productivity, or they are anticipating future productivity and price rises by buying houses now.

The trouble is, if the economy is skewed towards the buying and selling of houses, guess what? There won't be the necessary future productivity to pay off today's anticipatory buying of houses.

With all the credit and investment going into the housing market today, you have to wonder about the future state of the lopsided Australian economy. The simple fact is, buying houses today in the hope that others will pay a higher price for them in the future, isn't the recipe for a sustainable and healthy economy.

Rather, it's the recipe for a boom that is set to bust.