I don't think there is too much correlation between the two -...

I don't think there is too much correlation between the two - its not quite rational, but IMHO that's the way it is.

House prices in parts of Australia are yielding 3% rent or so - and the more asset prices increase, the more the yield decreases. I buy NOTHING on a 30 - 50 year payback...

The rent paid buy tenants can't increase in step, as this money would need to come from wages - which are absolutely on the decline... and no bank will sustainably lend a tenant rent money...

This leaves the balance of house investment returns coming from capital appreciation - of which greater than CPI is simply unsustainable over time [again, where does the money come from?] - unless we all subscribe to the 'bigger fool' theory - which, if true, effectively makes the Australian housing market one huge government backed ponzi scheme... they havent had happy endings yet ... ever ...

Commercial tenants are meanwhile paying 8% - 9% yields on office properties. Yet, its commercial that has had its face value punished... even though the tenant is of better quality and longevity - not to mention much more sound operational KPIs !

I guess banks may place a massive risk premium reduction on the emotional capital that owners invest in their caves.

Nope, I don't see the link between commercial and residential... wish there were though - that would seriously boost REIT values IMHO!