But again, you get the appreciation whether you rent or not. It's in an investors best interest to rent, as long as they don't have to give up control of the property doing so.
However, in Melbourne, it's estimated (from water usage analysis) that 20% (1) of investor owned properties are vacant (4.8 per cent of greater Melbourne's total housing stock and 18.9 per cent of all investor-owned housing stock).
So I don't believe the 'restrictive rental regulations' are primarily to blame.
Anecdotally, the inner-city 2 bedroom house (worth around A$1.5M) behind where I live has been unoccupied ever since I moved in ten years ago! I'm as baffled as you that people do this!
(1) http://www.afr.com/real-estate/almost-20pc-of-melbournes-inv...
the only reason this has recently slowed down is because fincen has started cracking down on such purchases.
btw this also happened after 2008 crash when banks forclosed a lot of properties but wernt selling any so they ended up holding onto them for long periods. some counties had to pass measures on similar lines. long term markets are efficient, short term not much so.