I'm not saying it couldn't happen, only that it's not the foregone conclusion these people suggest. Many of the forces driving the house-price boom of the 2000s here were the same as those in the US, UK and elsewhere - cheap and available credit, and self-perpetuating expectations of capital gains. But there are also major differences - the price boom did not lead to a building boom, such that population growth has outstripped dwelling growth at least since mid-decade. And there has been no recession, and no 'sub-prime' lending sector.
I don't think the mere fact of historically-high average valuation - average income is enough to say 'it's a bubble' because to say it's a bubble is to say it's unsustainable. There are previous examples of secular increases in housing costs to incomes - for example with the spread of mortgages from mid-century, which greatly increased the amount people could afford to spend on houses (and thereby meant many more people could buy houses) by capitalising future income. It wasn't unsustainable. Likewise, secular growth in real incomes, especially higher in the income distribution, facilitates a higher capacity to service larger mortgages. There's probably also a generational aspect with an aging population as wealthier people who have paid off their homes start investing in other homes. These demand-for-credit factors which had developed slowly and steadily met supply-of-credit factors in the late 1990s/early 2000s as banks and finance companies were able to borrow cheap internationally while firms had greatly decreased their net demand for banking credit and external finance in general.
The valuation-rent ratio is a more relevant factor. Certainly, the return on housing investment from rent is not what it used to be, and the compensation from expected capital gains won't go on forever. But the gap is not that large, and alternative investments are, for obvious reasons, low-yielding and uncertain at the moment. Finally, there's a reason why people might accept low rental yields compared with alternative assets - and that's that the banks won't lend you $500,000 to invest in shares, so you can't get the leverage.
So there are three things which could set prices sliding - a drying up of mortgage finance, or a shift in expectations about capital gains, or Australia finally getting a recession for some reason or other - and each of these is certainly possible. But a bust is not the only possibility even in those circumstances - it seems at least as likely that prices just stop rising very fast while incomes, prices and rent catch up - as happened around the middle of the decade. See, Australia was in a way one of the first 2000s 'bubbles' to pop, from mid-decade, but prices didn't fall very much, and then took off again - and it all happened again around 2008. So it may not be that the US shows Australia's future, but that Australia shows the US a parallel universe in which there was no crisis and we get an experiment in how far asset price inflation can go.
Mike Beggs