"it just sounds crazy to have a system that rewards people for losing money."
When I came out to Oz in 1991 and -ve gearing was all the rage, that was my question too! You invest to deliberately lose money? "Yesss!!" they said, "but you make on the capital gain and in the meantime you save tax." But then you pay tax on the CG, says I, and in the meantime, even though you save tax, your investment is continually cash negative. "You just don't get it!!" they yelled, at which point I knew who did get it - and it wasn't them.
So you have a system that requires houses to become less affordable for it to work for the investor.
