"My point is that investors know they can outbid FHBs because they have an IMMEDIATE tax advantage. They know that the land will greatly appreciate and outweigh any loses in the income stream (minimised via NG until positive)."
Investors will only bid what they think that can get an acceptable return to them on, and there is no guarantee that you will get capital gains over the short term. On the other hand people buying a home to live in can have a tendency to pay more just to secure the property that they have fallen in love with.
