For instance, most experts argue that relaxing planning restrictions in Sydney growth centres and building more high-rise flats could help slow the rise in house prices. The Greater Sydney Commission wants 40,000 new residences built a year.

But as the Herald’s Angus Thompson reports, local councils led by Ku-ring-gai on the North Shore are fighting targets for more apartment construction which would disfigure their streets and reduce the value of their homes.

The only policy tool which seems politically sellable is increasing grants to first home buyers but, in the medium term, it just inflates prices further.

The council says that the temporary slowdown in population growth as a result of the pandemic has relieved the pressure for new housing.

Meanwhile, ahead of the looming federal election, the ALP has scrapped plans for changes to negative gearing laws of rental properties – a policy it took to the last poll which could have redressed the imbalance between first homebuyers and investors.

The only policy tool which seems politically sellable is increasing grants to first home buyers. State governments across Australia gave them $2 billion during the pandemic and the federal government another $680 million. While this has helped a few thousand families, in the medium term it just inflates prices further.

The one factor looming on the horizon which will likely slow the rise in house prices is that the Reserve Bank of Australia has said it wants to raise interest rates, although not until 2024.

The Australian Prudential Regulation Authority, which regulates banks, has told banks to calculate borrowers’ ability to repay on all new loans on the assumption that interest rates will rise by 3 percentage points.

Yet even these sensible measures designed to restrain irrational speculation are coming under attack. Prime Minister Scott Morrison this week promised that he would keep interest rates lower than under the ALP if he is re-elected.

It is an irresponsible pledge since he has almost no control over mortgage rates and it is also politically risky. When John Howard made the same pledge before losing the 2007 election, it cost him dearly because the RBA raised rates a few weeks before the polls opened.

Yet, the new battle over interest rates touches a nerve with the community because the majority of Australians who are homeowners are terrified of falls in house prices or rises in mortgage repayments.

As veteran economist Saul Eslake told the parliamentary inquiry, “For all the crocodile tears which politicians of all persuasions routinely shed about the difficulties facing those wishing to get their first foot on the property ladder, deep down they know that there are far more people who already own at least one property than there are who don’t, but who would like to.”

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Longer term, governments should look at a range of issues which could encourage a more rational and stable housing market, from tax reforms, to zoning to transport links. Regulators should use limits on lending standards and other tools to slow the growth in Sydney house prices before it runs too much further.

But Sydney should not be under any illusions that its crazy housing market is about to change.

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