The figures were released as the Treasurer Joe Hockey told a Sydney media conference that housing was still affordable, saying if it wasn't, "no one would be buying it". Treasurer Joe Hockey. Credit:Andrew Meares The figures suggest that housing is becoming increasingly unaffordable for would-be residents who find themselves outbid by investors armed with the tax advantages associated with negative gearing. As recently as the early 1990s owner-occupiers accounted for 84 per cent of new home lending, leaving investors with less than 15 per cent. When the Howard government halved the headline rate of capital gains tax in the late 1990s, investors accounted for 33 per cent of the money borrowed.

The tax change made negative gearing much more attractive and brought about a surge in investment which reignited after the global financial crisis. Investment lending overtook residential lending in August 2014. In April intending residents borrowed $12.6 billion to buy homes while investors borrowed $13.5 billion. The figures exclude refinancing. They show that it is indeed possible for house prices to climb beyond the level where would-be residents can buy them. And houses are being bought by investors who are betting that prices will climb higher still. A "bubble" is what happens when prices are driven by speculation about what will happen to prices rather than by what genuine participants are prepared to pay. The Treasury secretary thinks the Sydney housing market is already in a bubble, as is part of Melbourne.

"It's unequivocally the case in Sydney. Unequivocally," he told the Senate last week. "Frankly, whatever the data says, just casual observation can tell you it's the case." Bubbles usually burst. In exceptionally well-managed cases they deflate slowly. Hockey seems keener to deny there's a bubble than to deflate it slowly. One of the safest ways to deflate the bubble would be adopt the Greens' proposal of denying negative gearing tax deductions to new investors. Existing investors wouldn't stampede for the doors and sell, but new investors would become more scarce, giving genuine residents a chance to get a foot in the door. The parliamentary budget office says it would save the budget $4 billion a year. No-one who is presently negatively gearing would mind, and air would leave the bubble.

Peter Martin is economics editor of The Age. Twitter: @1petermartin Follow us on Twitter