The building industry believes that if state governments ease zoning restrictions 20,000 extra homes could be built over the next five years.
The Reserve Bank, in a research paper released last week, said zoning regulations were restricting housing supply, which in turn pushes up prices.
It estimated the average Sydney house, valued at $1.16 million in 2016, represented a $395,000 structure on a $765,000 block of land.
"However, the reason land is expensive is not because it is physically scarce," it said.
Master Builders Australia CEO Denita Wawn said the Reserve Bank's research backs similar work her organisation did last year.
"We estimated that if you reduce the zoning restrictions alone, 20,000 extra homes could be built over the next five years," she told ABC television on Sunday.
"We know that we need an additional 200,000 homes in Australia to meet current demand, let alone (the) population increases that we're going to face over the next few years."
Ms Wawn advocates a collaborative approach between all levels of government to target these barriers, and as such is supportive of the federal government's city deals with state and local governments to target restrictions on land.
But Planning Institute of Australia said the central bank's research is misleading and yet another attempt to shore up the popular misconception that getting rid of controls on land-use will solve the housing affordability crisis.
Its national principal policy officer John Brockhoff said zoning is one of the keystones of good planning and helps the property market to work efficiently and effectively.
"Planning has a key role in preventing land-market failure leading to wider community costs - expressed in costs to doing business as well as social and environmental costs," Mr Brockhoff said in a statement.
Housing affordability research by the Grattan Institute last week estimated if an extra 50,000 homes were built each year for the next decade, national house prices could be between five and 20 per cent lower.
Welfare advocate ACOSS chief Cassandra Goldie said there is also a need to tackle the measures that are fuelling demand.
"We do think that we need to roll back negative gearing arrangements and reduce the capital gains discount over time," she told ABC television.
She is concerned these measures continue to fuel speculative property investment, which is pushing up housing prices at a time when wages and income support have almost been frozen.
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