Historically low interest rates, both for borrowing and lending, are also a key factor in the flight to bricks and mortar investment. A volatile and still underperforming local stock market is another significant driver of residential investment.

Of course, confidence is the underlying key to increased and still rising housing investment this year. Increased confidence by lenders is also a factor in rising investment activity, with competition by banks for customers intensifying as the housing market generally moves into a clear and sustained upswing phase.

Increased investment activity is particularly pronounced in the Sydney housing market. The latest ABS home loan data for New South Wales have revealed that the value of investor finance has risen by a stunning 30.4 percent over the first four months of this year compared to the same period in 2012.

New South Wales now accounts for nearly 40 per cent of all investment lending in Australia and most of that activity is naturally centred on the Sydney housing market. Sydney remains the gold standard for Australia’s capital housing markets, reflecting the city’s chronic underlying shortage of housing and its solid diversified local economy.

The shortage of housing in Sydney also means a tight rental market, with constant upward pressure on Australia’s already highest capital city rents together with high occupancy rates and solid gross yields. Significantly, Sydney also offers the ongoing prospect of secure capital gains over the medium term.

The Sydney market bounced back strongly in 2012, with median house prices rising by just under 5 per cent over the year to record median house price levels. This year Sydney house prices can be expected to again rise by at least 5 percent over the year.

By contrast, Melbourne provides a significantly more tenant-friendly housing market. Reflecting higher levels of vacant rental properties, Melbourne rents have declined over the past few years and are now 40 per cent lower than Sydney’s with gross yields the lowest of all the major capital cities.

Melbourne’s house price performance has been less impressive than Sydney’s over the past two years, with median prices down by 5.1 percent in 2011 and down again by 0.5 per cent in 2012.

However, Melbourne’s house prices rose by an unsustainable 30 per cent between January 2009 and June 2010 so some downward price correction was always inevitable.

This year has witnessed a solid revival in housing market activity in Melbourne, with house prices rising by three per cent over the first half of the year. Part of this revival is being driven by investors who are aware of the potential significant upside to capital growth over the medium term considering the Melbourne market still remains five per cent below its 2010 price peaks.

The ABS confirms the rise in investor activity in Melbourne this year with the value of investor home loans in Victoria 9.1 per cent higher over the first four months of this year compared to the same period last year.

Investor activity in the Perth housing market is on the rise, with Western Australia investor loans up by 22.2 per cent over the first four months of this year compared to the same period last year.

Increased investor activity is being driven by a surge in rents driving up yields in Perth as that city struggles under a record wave of jobseekers into Western Australia seeking accommodation. Perth rents have risen by nearly 15 per cent over the past year and will soon challenge Sydney as the most expensive of all Australian capitals.

Other capitals, however, have recorded modest increases in investor activity, reflecting the more subdued nature of some local housing markets. Brisbane nonetheless remains a good prospect for increased investor activity, currently returning the highest gross yields of all the capitals courtesy of a tight rental market, rising rents and, together with Adelaide, the lowest mainland capital city house prices.

This provides plenty of upside for prices growth from a housing market just starting to rise from the bottom of a prolonged period of subdued buyer activity as local economic activity and confidence improves.

This year has reaffirmed the strong underlying attachment of investors to Australia’s capital city housing markets – a commitment that remains a key ingredient to sustaining the consistent and resilient world-beating performance of the national market.