The simmering debate about whether Australia has a housing bubble erupted again this week over a Commonwealth Bank presentation that seeks to assure global investors Australian real estate is a safe bet.

Senior Commonwealth Bank executives have travelled the world in the past couple of weeks with a presentation showing how Australian house prices, and the key price to income ratios, compare favourably with similar countries.

"Housing affordability has actually been going sideways for the last five to six years," said Craig James, the chief economist of the bank's trading arm, CommSec.

"This is something which has now been acknowledged by the Reserve Bank, so one of the great myths has now been debunked - housing is not unaffordable here in Australia."

CBA has waged its war against what it believes are housing doomsayers with graphs, numbers and international comparisons.

In its presentation, the bank rejects arguments that Australia's housing is relatively expensive compared to incomes.

It says Australia's house price to household income ratio of 5.6 in the major cities, and 4.3 nationwide, is comparable to many other developed nations.

It says San Francisco and New York have ratios of 7, Auckland's is 6.7, and Vancouver comes in at 9.3.

However, the Commonwealth's own graph shows Australians are spending more of their income on housing compared with the past.

In the mid-1990s, capital city house prices used to be around three times annual household income - now they are 5.6 times annual income.

Craig James says that is because, as incomes have risen, Australians have been able to spend relatively less on other household necessities and have more free income to invest in property.

"Australians have been getting more prosperous and with that extra income, with that extra wealth, people have decided what they are going to be able to do with that," he said.

"What Australians have decided to do is to put it into property."

'Disingenuous' figures

However, as Australia's largest home lender, the Commonwealth Bank has one of the biggest vested interests in house prices rising.

It effectively owns a massive swathe of Australian housing as security for its home loans as well as many small business loans.

Many analysts say that has led the bank to use misleading figures and comparisons.

If you go to page four of CBA's presentation and read the source information at the bottom of the graph and table, you would notice there is an additional source on the international comparison - Demographia.

However, if the Commonwealth Bank had also used Demographia's analysis of Australia's house price to income ratio, it would have come up with a figure closer to 9 rather than 5.6 or 4.3.

The global strategist at international investment bank Morgan Stanley, Gerard Minack, says many of the figures used by various groups that argue Australian housing is not over-valued are misleading.

"Some of the material has been a little disingenuous. They have used a broader measure of income to calculate house price-income ratios in Australia than they used overseas, which is just an apples and pears comparison," he said.

"If you use the constant yard stick, either a broad-based measure of income, or just a more narrow focus such as wage income, they all pretty much show the same thing, which is we've seen a big step up in house price to income ratios over the last 15 [to] 20 years."

He says, on his figures, Australian housing looks very expensive against comparable countries.

"Adjusting for city size, we look around about 40 per cent more expensive than homes in the UK, Canada, New Zealand and Ireland," he explained.

"If I add the US to the mix, and the US has always had traditionally cheap house prices, we look expensive by about 85 per cent."

Another obvious problem with the Commonwealth Bank's domestic price to income figures is they compare average incomes with median house prices (unlike the Demographia figures that compare median incomes to median prices).

The median is the mid-point, effectively cutting out the highs and lows, and that means the average is generally higher when it comes to incomes and asset prices, because it includes the earnings of Australia's wealthiest people.

To put it another way: the Commonwealth Bank's figures count Ralph Norris' multi-million dollar pay packet on the income side, but not his (no doubt) very expensive house in the property price figures, thus understating the house price to income ratio for middle-income Australians.

The house price to income figures also compare disposable household income to house prices. This measure of income includes superannuation and imputed rent.

In plain English, imputed rent is the money home owners would have earned in rent if they leased out the home they live in, rather than money they actually receive.

Craig James was not a part of the team that drew up the Commonwealth Bank presentation - CBA told the ABC they were all still out of the country - but he says the figures do present an accurate picture of changes in prices relative to income over time.

"In terms of Australia as a whole, housing hasn't become more affordable or less affordable over the last five to six years," he said.

"We do know things like food, clothing, transport, normal household items are taking up a much smaller proportion of people's budgets over time, which means that they are better prepared to be able to put more money into housing."

But he seemed somewhat stuck when asked whether you could look at that trend another way - that increasing house prices have pushed down the amount of money people have left over to spend on consumption and transport.

"Yeah, I suppose there are different ways of looking at it," he replied.

"The simple fact here in Australia is that we have had real wage gains over a long period of time. You say the concept real wage gains to anyone across the world and they will look at you blankly. They just haven't experienced those sorts of things."

Another problem of comparing household income, instead of average weekly earnings, to house prices is that it masks the trend towards more dual-income households.

For instance, where one person on an average full-time wage could pay-off a typical house in Sydney a couple of decades ago, it now takes two.

That means Australians are working a lot more hours to pay off their home loans.

Stagnation 'a dream outcome'

The Reserve Bank has used the same methodology as the Commonwealth Bank in a report released this week to show that house prices have been relatively stable compared to incomes over the past five years.

However, unlike the Commonwealth Bank, the Reserve was willing to go back beyond the five-year period and hint there was a housing bubble in the late 1990s and early 2000s, that it leaned against at the time with policy statements and a series of interest rate rises.

An RBA graph of real dwelling prices highlights the rapid increase in property values, at a time when capital gains tax changes and the introduction of the First Home Owner Grant fuelled demand.

Prices roughly doubled between the mid-1990s and early 2000s.

The point the Reserve Bank does not publicly acknowledge is that prices have not come down relative to incomes since then.

While the Reserve Bank consistently denies the current existence of an Australian housing bubble, Gerard Minack argues the bubble that formed nearly a decade ago still needs to deflate.

He says the RBA is probably hoping house prices will stagnate for an extended period to allow incomes to catch up.

"My sense is that is what policy makers would be hoping for - a sense of stagnation to allow things like income to catch up to make home prices more fairly valued," he said.

"I can't speak for the RBA, but my sense would be this would be a dream outcome if they could stabilise house prices for let's say five or even 10 years and let income catch up.

"That would be a best case - far better to have that than to have outright house price declines."

One thing the Reserve Bank, CommSec and Gerard Minack all agree on is that Australian house prices are unlikely to collapse US-style in the short-term, provided unemployment stays low.

Citi Group's chief economist Paul Brennan also agrees, and says the reason is that Australians are unlikely to sell up at discount prices unless they absolutely have to.

"The real test is the ability of households to service their loans and, if we look at that, the Australian situation is that the level of housing arrears is extremely low," he explained.

But an outlook of stable prices is not so good for investors.

Gerard Minack warns prospective property punters that buying an over-valued asset never offers a good return.

His research includes tax office figures that show the percentage of landlords making a net loss on their properties has risen from 50 to 70 per cent over the past decade.

The vast majority of those loss-making investors are middle- and low-income earners.

That means they are relying on negative gearing in the tax system to offset some of those losses in anticipation of future capital gains.

But if those expected capital gains do not eventuate, there will only be losses for investors joining what Gerard Minack describes as Australia's biggest Ponzi scheme.