Nah bollocks, Ben has it wrong - you have to pay income tax on investment property income just like any other income. Yes, you have deductions for interest and costs, but a the end of the day you pay tax like any other income. In fact, when you own a home for investment you generally get a worse interest rate (as it is a commercial style loan), pay higher water/land etc rates (as it is income-producing), etc etc. Imagine if no-one bought investment properties Karl - who would there be for people to rent from? We already have a MASSIVE rental housing crisis is SA (to be exacerbated in 2009 with a larger influx of immigrants) and if people did not buy rental properties there would simply be NO houses for these people to rent. As you pointed out, not everyone has the income to pay off a home loan - for many even a loan of $200k would be simply impossible to service.
The plain and simple reason for the property market going up is people's greed. They borrow more and more and more money, only to bid property prices up higher and higher. That is when a prudent investor waits for the market to crash a bit, then moves in and buys properties at the right prices (muahahahahaha rubs hands together), as MIPs become more and more common (currently 20 a week in Adelaide alone atm).