Australia's federal government is under growing pressure to control the surging housing market following growing signs of a bubble that experts say could burst and cripple the economy.
In recent weeks, the financial regulator and the corporate watchdog have both issued warnings about the housing boom's risks, signalling that banks should curb home lending - especially to investors.
Experts say a collapse in home prices appears increasingly likely, and this could lead to Australia's first recession in 26 years, sending ripple effects across the region.
"If a bubble means that prices are unrealistically high and likely to correct on the downside, yes - there is a bubble," Dr Timo Henckel, an economist at the Australian National University, told The Straits Times.
"The house prices are not sustainable… Historically, collapsing housing price bubbles have always involved extended economic pain. They almost always coincide with a recession," he added.
The house prices are not sustainable… Historically, collapsing housing price bubbles have always involved extended economic pain. They almost always coincide with a recession.
DR TIMO HENCKEL, an economist at the Australian National University.
PROPERTY PRICE INCREASES SINCE 2009
Source: The Australian Financial Review
Concerns about the health of the housing market in Australia follow a staggering rise in prices, fuelled by record low interest rates. Since 2009, property prices have doubled in Sydney - rising by 104 per cent - and are up by 88 per cent in Melbourne. Increases in other capital cities have been more moderate, with prices rising by up to 20 per cent, aside from Canberra where prices have increased by about 40 per cent.
The boom has left growing numbers of Australians with hefty mortgages that could prove difficult to service if unemployment or interest rates rise. Household debt relative to incomes has reached a record high of 189 per cent - one of the highest levels in the world.
Mr David Murray, a former chief executive of the Commonwealth Bank of Australia, the nation's largest bank, warned that the country risks a repeat of the devastating depression of the 1890s, which led to a banking collapse.
He said the housing boom "shouldn't be allowed to grow… it's too big a risk to take".
"What people should do is look at the 1890s, which was caused by a housing land boom," he told The Australian. "To say it won't happen and simply ignore it is wrong."
Dr Henckel said a downturn would probably affect global financial markets as large amounts of foreign capital have ended up in Australia's housing market in recent years. "You could have some serious ripple effects across the international financial system," he said.
"The housing market in Australia is part of the global financial market… If there is a downturn, you would see reversals of capital."
The property boom followed the decline in Australia's China-fuelled mining boom and was, to some extent, also an unintended consequence of the rush by the central bank to lower interest rates to try and stimulate the economy in the aftermath of the 2008 global financial crisis.
But the housing bubble - as most commentators are now calling it - seems almost impossible to contain. Part of the problem is that the boom is being fuelled by investors, who are more likely to sell in a downturn than those who are owners- and-occupiers. Almost 50 per cent of home loans are being made to investors, up from historic levels of about 40 per cent.
Regulators have started to try curbing the market, including clamping down on loans in which buyers pay back the interest only for the first few years of the loan.
Some analysts have called for the federal government to go further and remove tax breaks for property investors.
But Treasurer Scott Morrison used a speech on Monday to all but rule out tampering with the tax breaks, saying this would encourage investors to raise rents.
However, some experts, such as economist Chris Richardson at Deloitte Access Economics, remain optimistic about the overall economy, suggesting the housing bubble is a necessary side-effect of lowering interest rates.
He also believes Australian banks are well-positioned for a downturn in the property sector.
"We chose to go from a China boom to a housing price boom," he told The Straits Times. "Australia has extremely safe, extremely profitable banks. They can withstand a lot of stress."