[octodog]

That's true, you're completely correct that income is still a constraint.

However, there are a few other factors that can increase borrowing capacity significantly. First, personal incomes tend to increase over the course of your lifetime as you get promotions. Second, when in a falling interest rate environment your borrowing capacity is increasing at the same time property prices are being pumped up. This is exactly the time when people tap into that equity. Third, you can get a slightly better rate at lower LVRs, which can help a little bit as well. Finally, a lot of the people who use this strategy have very high incomes to begin with and their borrowing is constrained by their available capital, not their incomes. This is why every neurosurgeon has a negatively geared property by the time they reach 30.

The reason this has been a popular strategy for a long time is that interest rates have been falling for the last 30 years. It's not so attractive right now as interest rates are increasing.