The head of Australia's banking regulator says the current state of the housing market poses a possible risk to the economy, even if it isn't in a bubble.
With house prices rising much more quickly than incomes, and household debt still high, the property market could pose a risk to the economy, Australian Prudential Regulatory Authority chairman Wayne Byres said.
"If you look at the conditions we are in at present, where we have very low interest rates, very high household debt, subdued income growth, rising unemployment, very high house prices, a very competitive financial market in terms of house lending ... there's a lot of potential for risk," he told a federal Parliament economics committee.
"Risk is probably higher than it might otherwise be and that is why all of the agencies are paying particular attention to it at the moment."
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But Byres stopped short of saying Australia was in a housing bubble.
"I don't know what a bubble is and I don't quite know how you spot it ... If these things were easy to spot and define, almost by definition regulators could deal with them," he said.
Byres said APRA, which is responsible for ensuring the stability of the financial system, may force some banks to hold extra capital if it finds they are engaging in risky lending practices.
"We are looking institution by institution at a range of aspects of their lending practices and we are in the process of making an assessment as to how prudent or otherwise their current plans are," he said.
"So far, our discussions with the major lenders have suggested they recognise it is in everyone's interests for sound lending standards to be maintained. But we shall see - we are ready to take further action if needed."
Sydney's housing market is soaring and showing no signs of slowing, with its median house price expected to climb well above A$1 million ($1.02 million) within two years. Prices in Sydney have risen almost 14 per cent in the past 12 months, according to the Australian Bureau of Statistics.