A Reserve Bank official believes that when an interest rate rise finally comes it is unlikely to have a detrimental impact on many borrowers in Australia.
That's because a majority of people actually pay off more of their mortgage than required by the loan contract, RBA assistant governor for economics Luci Ellis told a parliamentary hearing on Monday.
This has been particularly the case during the pandemic when people have not been able to spend as they normally have, instead putting away money in offset and redraw mortgage accounts.
"If and when rates do eventually rise, a lot of them will not have to raise their actual repayment because they have already paid more than then need to," Dr Ellis told the hearing into housing affordability and supply.
She said the strong rise in housing prices had been a feature of many advanced economies recovering from the pandemic.
"This is not surprising when interest rates are low, incomes were boosted by fiscal policies and many households are cashed up with savings accumulated during lockdowns," Dr Ellis said.
But she does not believe there is an overall shortage of housing in Australia, with stock having run ahead of population growth for a number of years, which has led to higher vacancy rates in the largest capital cities.
"Vacancy rates in the two largest cities rose further following the onset of the pandemic; with the international border closed, population growth dropped sharply," she said.
At the same time, the federal government''s HomeBuilder program and similar state-based grants have encouraged more home building, and will for a while yet.
"If Australia had not been building enough homes to house its population, you would have seen rents rising across the country. Instead, the situation has been mixed in recent years," Dr Ellis said.
Rents have been quite weak in the two largest cities of late, but in some regional areas, pressures on rental affordability are reportedly quite acute.
Dr Ellis said the supply side of the housing market had inherently limited capacity to adjust to sharp increases in demand.
But she made some recommendations to make the market more responsive.
"These include speeding up planning systems to reduce general inefficiencies, improving transport infrastructure and lowering the cost of new construction," she said.
"Supply-side changes of this nature would dampen the increase in prices that ensues when demand increases."
However, she says they will not conquer rising demand, and they will not prevent price increases entirely.
"Moreover, housing market policies that add to demand will only amplify any upswing in prices," she said.