Labor and welfare groups say high house prices are locking young people out of the market and the government should do more to tackle affordability.
But Prime Minister Tony Abbott says Labor leader Bill Shorten is talking down asset values to the detriment of families.
Treasury boss John Fraser sparked the debate on Monday, telling a Senate estimates hearing that Sydney and wealthier parts of Melbourne are "unequivocally" in a housing bubble.
Mr Shorten asked Mr Abbott in parliament on Tuesday whether he believed Mr Fraser was right.
"Does the prime minister have a plan for housing affordability for young Australians locked out of the housing market?" Mr Shorten asked.
Mr Abbott said it was a "bizarre line of questioning".
"What we do not want to do is to jeopardise the future of Australian families who are buying their homes by reducing the value of their biggest asset," Mr Abbott said.
The PM said price trends differed across the country and national policies should not be based on what is happening in one city.
Treasurer Joe Hockey said housing affordability was being addressed.
He said the Victorian Labor government treasurer Tim Pallas was heading a task force looking at housing affordability.
But the key issue was the supply shortage, despite new construction rising 12 per cent in the past year.
Labor MP Jim Chalmers said Mr Abbott needed a lesson in the difference between a housing bubble and a "sustainable price increase".
Australian Council of Social Service chief Cassandra Goldie said that while low interest rates and a lack of supply were inflating the market, the government should ensure its tax breaks are not making the situation worse.
"Tax arrangements need to improve housing affordability not undermine it as they currently do," Dr Goldie said.
Adrian Pisarski, from housing peak body National Shelter, said inflated house prices were pushing workers to the fringes of cities, locking them into rental accommodation and reducing productivity by lengthening the daily commute.
Housing Industry Association chief economist Harley Dale said strong price growth was only evident in Sydney.
"Any corrective action by regulators must be very targeted, so as not to adversely affect broader housing demand," Mr Dale said.
"Residential building is one of the few bright lights in the economy at the moment, and it would be unwise to interfere in the market to an extent that risks derailing activity."
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