Property investors aren't to blame for soaring house prices. Here's why...

Property investors often get the rap for rising house prices. They compete with first home buyers in the property market and as everyone knows, if you increase the demand for something, the price goes up. Nobody could argue with that right?

Wrong.

No, I'm not shilling for property investors - they're a blight on society - I'm just stating a fact. To understand why property investors don't drive up prices, you first need to understand the concept of substitute goods.

In economics, substitute goods are products that satisfy the same need. Think: Coke and Pepsi, butter and margarine, Uber and taxis. If one becomes too expensive, people switch to the other. The more interchangeable they are, the less impact increased demand has on price.

Now apply this to housing. What’s the substitute for buying a property? Renting one. Both serve the same purpose: a place to live. While not a perfect substitute—many prefer owning—it’s close enough that price pressures in one market affect the other.

So, what happens when investors enter the market? Yes, they increase demand for properties for sale. But they also increase supply in the rental market. That’s key. If someone buys a home and rents it out, the overall number of dwellings available to live in doesn’t change. The house hasn’t vanished—it’s just moved from the "for sale" column to the "for rent" column.

From a supply-demand perspective, it’s neutral. One less house for sale, one more to rent. Same number of people, same number of dwellings. No net change in demand or supply. So prices shouldn’t move significantly because of investors—unless they're keeping homes vacant, which most don’t. The rental income helps pay off the bank and negative gearing requires the property to be income-producing.

So if it’s not investors, what is driving up both house prices and rents?

It's insane how many people can't figure it out - or more likely, don't want to admit it. It's not investors and it can't be a supply issue because the number of homes is always increasing which puts downward pressure on prices - not upwards. The problem is obviously immigration.

You’ll rarely hear this from politicians or the mainstream media though. The ABC run housing crisis stories without ever mentioning immigration—and immigration stories without mentioning the housing crisis. Meanwhile, they push the fantasy that increasing housing supply will fix the issue, as if bailing water from a sinking boat is a long-term solution.

But property investors aren't off the hook. As I mentioned above, they're a blight on society. Many countries increase taxes on second and subsequent properties to give first home buyers an advantage. Australia is the only country that does the opposite. Property investors are destroying the great Australian dream for many first home buyers - but they aren't responsible for skyrocketing house prices and rents.

Property investors increase demand for properties for sale, but increase supply of rental properties - so more people end up having to rent.

Immigration increases demand for properties for sale, and increases demand for rental properties - so more people end up homeless.