Aussie PM acknowledges Reserve Bank warning about nation's housing affordability crisis

Australian Prime Minister has acknowledged concerns raised by the Reserve Bank of Australia (RBA) that housing debts were rising out of control compared to wage growth.

The prime minister said the government will introduce a housing affordability package in the upcoming federal budget.

Speaking to the press from the state of Tasmania on Wednesday, Turnbull said the government would take into account RBA governor Philip Lowe's warning that the future of housing affordability could have a negative effect on the economy.

"I encourage everyone to wait for the (federal) budget," Turnbull told the press.

"There is always a concern about when property prices rise too quickly and this is particularly an issue in Sydney and in Melbourne.

"This is the role of the central bank to monitor these movements in prices and ensure that there is some restraint and you can see that the restraint or the restriction in the amount of interest-only loans made to investors is a very timely one."

Overnight, Lowe warned Australians that sluggish wage growth combined with ever increasing housing prices would only spell doom for the Australian economy, and urged "strong intervention" to avoid a sudden crippling downturn.

"(Home) lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions," Lowe said at a business dinner.

"The concern has been that the longer the recent trends continued, the greater the risk to the -future health of the Australian economy"

"Stretched balance sheets make for more volatility when things turn down. For many people, the high debt levels and low wage growth are a sobering combination."

Lowe said that "too many loans are still made where the borrower has the skinniest of income buffers after interest payments", warning that many banks and home lenders are too happy to offer home loans to those who may not be able to truly afford them."

"In some cases, lenders are assuming that people can live more frugally than in practice they can, leaving little buffer if things go wrong," he said.

Meanwhile Treasurer Scott Morrison who will hand down the budget on May 9, said the government was on top of the issue, and the housing affordability would be a key issue in the budget papers.

"This is why the government in addressing these demand side issues in the housing market has always preferred working with the regulators to ensure they use their common sense calibrated and measured responses," Morrison told the Australian Broadcasting Corporation (ABC) on Wednesday. Endit