A global economic organisation has backed Treasury concerns about Australia's heated housing market.
The Organisation for Economic Co-operation and Development, releasing its latest economic outlook in Paris, warned the continuing strength of house prices is adding to the risk of a "sharp correction".
Treasurer Joe Hockey insists increasing residential construction is the best way to respond to such concerns.
"You've go to get the stock up," he told ABC radio on Thursday, citing figures showing an 18 per cent increase in the number of construction starts in 2014.
Mr Hockey dismissed talk about a housing bubble in Sydney and parts of Melbourne, saying the global experience was that only happened when supply exceeded demand and that was not the case in Australia.
He said you have to be careful how you respond because house price gains have not been uniform across the country and are actually coming off in Western Australia.
"We certainly don't subscribe to the suggestion that you've got to go into the market and deliberately try and deflate house prices," he said.
Treasury boss John Fraser told senators this week that there was little doubt there was a housing bubble in Sydney and the top-end of the Melbourne market and is concerned that low interest rates are encouraging people to over-invest in housing.
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