The treasurer and the Reserve Bank made somewhat contradictory comments on the housing market on Tuesday. Joe Hockey argued that talk of a housing bubble was “lazy analysis”, while the minutes of the RBA’s monthly monetary policy meeting made frequent mention of the recent housing price rises and concern about speculative investing. For Joe Hockey, the important note from the RBA might be that it has decided to leave the work of stimulating the economy to the treasurer.

Predicting a housing bubble is a very economist thing to do – getting it right will lead to you being introduced on TV shows as “the economist who predicted the housing bubble of 2014”, and if by chance you are wrong, generally it will be forgotten and you can continue to go on TV predicting a housing bubble is just around the corner.

So while it is good fodder for economists, it is not wise for a treasurer to start intimating that rising housing prices could be set to burst – lest people actually believe him and as a result housing prices do quickly start to fall. In that context, Hockey’s remarks about the lack of a housing bubble are quite unremarkable.

His comments came in the context of a report by the Bank of International Settlements that showed residential housing prices in Australia were the second highest in the world. That fact doesn’t necessarily mean housing prices must fall. Housing prices are not determined on a world market – you can’t decide to go buy a house in France just because you think housing is too expensive in Parramatta. But the report does give some context to the view that our housing prices are overvalued.

Hockey responded to such talk by arguing that Australia’s housing price situation is not due to a bubble but rather due to lack of supply. He argued that “Australia fundamentally doesn’t produce enough houses to meet demand.”

There is no arguing with this position. Despite successive governments viewing housing affordability as a demand problem and providing incentives such as the first-home buyer’s grant, the reality is lack of supply has greatly driven prices as investors and homebuyers fight over the limited number of houses on the market.

Hockey suggested the talk of a housing bubble was “lazy analysis, because fundamentally we don’t have enough supply to meet demand”.

His argument essentially is that given many more people want to buy homes than there are homes to buy, even were the demand for houses to fall (due to an economic slump), the limited housing supply would mean that there would still be a greater demand for housing than there would be supply of houses to sell.

Now that doesn’t mean housing prices can never fall; but it does suggest any falls will be much smaller than in areas where there is a glut of housing.

Hockey’s response is that in such a case, if housing prices start to rise, then “you’d expect the market to react and produce some more housing.”

This actually has happened.

Throughout 2013, in most states there was strong growth in building approvals for dwellings.

Mostly the boom in dwelling approvals has gone off the boil – especially in NSW – but the lag of time from approval to finished building suggests there should be a good increase in supply over the next 12-18 months.

And perhaps this increase in supply has already had some impact. According to the latest ABS data, in Sydney housing price growth seems to have dimmed a little bit, and overall the capital city average also appears to have come off a peak:

But counter to this is the news from RPData that capital city dwelling values increased 4.2% during winter, to record “the strongest capital gain over the three months of winter since 2007”.

Such price moves might be behind the RBA noting in its minutes that “conditions in the established housing market continued to strengthen. In particular, housing prices had been rising at a rapid pace and auction clearance rates were above average levels”.

It also noted that “housing credit had continued to grow at an annualised pace of around 7%, with investor credit a particularly strong component.”

And certainly investor credit is growing faster than that of owner-occupiers, although the annual growth of 8.9% investor credit is well below the 30% reached in 2002:

But as the AFR’s Christopher Joye (who is certainly in the housing bubble camp) has noted, the recent increase in housing demand is definitely investor driven. Investors now make up nearly 40% of all housing finance commitments – the same share they had back in 2002-03:

And it is here the RBA is most worried – noting that “the pick-up in housing credit growth had been more pronounced [for investors] than for owner-occupiers” particularly in Sydney, and to a lesser extent Melbourne”.

They then note that “additional speculative demand could amplify the property price cycle and increase the potential for property prices to fall later”.

The RBA minutes suggest the concern is that a drop in property prices later would affect the stability of the broader economy “particularly if households were to react to declines in their wealth by cutting back on their spending”.

The minutes also echoed comments made by RBA governor, Glenn Stevens, in a speech in Adelaide two weeks ago in which he noted that while low interest rates “stimulate growth in the real economy, we don’t want to foster too much build-up of risk in the financial sector”.

As a result he stated that while lowering interest rates may “see a faster reduction in the rate of unemployment” it came at the risk of “further inflating an already elevated level of housing prices”. Such a path he felt was “an unwise route”.

Thus there seems little likelihood of any interest rate cuts in the near future. Indeed, the market has shifted from its position in early July of expecting a rate cut early-mid next year, to now anticipating a rate increase late in 2015:

So while the RBA is perhaps stopping short of saying there is a housing bubble, it appears rather more concerned than Hockey that housing prices could fall – it would seem that the RBA views any suggestion that prices may not fall as itself rather lazy analysis.

For Joe Hockey however, the comments from Stevens have a greater sting than maybe contradicting him on housing prices. The RBA has clearly decided it is not in the business of providing any further stimulus through lowering interest rates, lest it cause housing prices to grow faster. It means if the economy does not pick up over the next six to 12 months, it will be left to Joe Hockey to stimulate the economy with his next budget – a tough ask for a treasurer preaching austerity and a path back to surplus.