The head of the Abbott government's financial system inquiry David Murray isn't surprised that financial regulators are concerned about soaring house prices in parts of Australia.
Treasury secretary John Fraser recently said "unequivocally" that a housing bubble exists in Sydney and the high-end of Melbourne, while Reserve Bank governor Glenn Stevens last week described some of things that are happening in Sydney as "crazy".
Mr Murray, a former Commonwealth Bank boss, says Australia isn't facing the same set of circumstances as the US that sparked the 2008-2009 global financial crisis.
But mortgage lending by the banks has increased as a proportion of their total balance sheets since the GFC and the amount of capital set aside for that hasn't moved much.
At the same time, house prices are high relative to personal incomes and have grown rapidly in Sydney and Melbourne.
"So these things would put the regulators on notice of potential problems in the housing market," Mr Murray told Sky News on Sunday, noting that the Australian Prudential Regulation Authority has already taken some steps to deal with home lending.
Housing affordability was a key issue dominating the political debate last week.
Finance Minister Mathias Cormann says increasing housing supply with the help of state governments is one of the government's top priorities.
He believes the government must provide the right settings so that individuals can be successful, including having the best possible opportunity to access the housing market.
"Working with the states on initiatives to increase supply that will help make access to housing more affordable," he told Sky News.
He reiterated that the government had no plans to make changes to negative gearing, saying it would be "counter productive".
He said if it's harder for people to invest in the private housing market it will reduce the supply of rental accommodation and increase rents.
"The Hawke government tried to make change in this space and very quickly had to reverse that position because of the effect it had on rental prices," he said.
Mr Murray said you can't look at negative gearing and capital gains tax on housing in isolation, rather you have to consider how they interact with other taxes.
"You have to look at them all," he told Sky News.
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