The recent surge in house prices has again reduced housing affordability.

According to recent research at the University of NSW, home ownership is now out of reach for anyone under the age of 35, compromising our nation's future, creating instability, shifting money away from more productive investments and seriously compounding inequality.

The report, Housing: Taming the Elephant in the Economy, emphasises that national household debt has more than doubled over the past three decades, from 70 per cent of GDP to about 185 per cent in 2020, "exposing a ticking economic time bomb should interest rates rise in future'.

Other data from the Australian Bureau of Statistics reveals that the average new loan reached a record $635,300 in NSW in April, an increase of $35,000 in the past 12 months.

In Victoria, the average new loan has increased from $488,000 to $523,000, while the average loan for a first homebuyer is at a record $451,500.

The median house price in Sydney is now $1.2 million, and in Melbourne a little over $900,000. Indeed, since the mid-1990s house prices have outstripped income growth, contributing to a 4 per cent drop in national home ownership, heavily concentrated on young people.

A related and disturbing outcome is that our banks have become heavily concentrated on mortgage finance, increasingly compounded by what the Hayne Banking Royal Commission called a "culture of greed", whereby banks knowingly lent homebuyers more than they knew they could afford.

A recent report by the OECD found that Australian households are the second-most indebted in the world (after Switzerland).

It focused on our "astronomical house prices" - an increase of 120 per cent in real terms, after allowing for general inflation, in the 20 years to 2020 - only exceeded by house prices in New Zealand, Canada, and Sweden.

The OECD report also says that it takes six years longer to afford a home in Australia - 16.4 years of disposable income for a 100-square home, compared with 10.4 years for the OECD average.

In addition, house prices which, given COVID, have somewhat unexpectedly risen nationally by 10 per cent in the year to April 2021, are forecast to rise up to a further 14 per cent in the coming year, putting home ownership further out of reach for many.

The report says the impact on intergenerational inequality is of serious concern: "Surging property prices have left some wealthy and older Australians better off, but younger and poorer Australians, who are the future buyers, are much worse off."

Alarmingly, much of this is due to poor government policy, national, state and local.

I recall a senior Treasury official explaining to me, when I worked as an advisor to the treasurer in the Fraser government in the 1970s, that management of the housing sector was the main mechanism by which they smoothed our economy - (in words to the effect) "pumping it up when growth slowed, and hitting it hard when things got a bit overheated".

The response could be relatively quick, with significant multiplier effects beyond just the construction sector.

Overall, this mentality has created a "boom/bust" housing sector. Isn't this precisely what the Morrison government has done over the last couple of years?

Our housing sector was somewhat in decline pre-COVID. The need for short-term stimulus to counter the impact of the medical responses - social distancing, lockdowns, border closures etc. - saw the government pour money into the housing sector.

The Reserve Bank both set and maintained historically low interest rates, and promised to keep them there for the next three years or so.

It provided additional cash to the banks, and the government initiated direct budgetary stimulus to the sector including by way of HomeMaker, and assistance to first home buyers.

In the last budget, the government committed to extend its assistance to the sector, not surprisingly to just beyond the next election.

Home building, including renovations, has boomed, with now clear signs of overheating. Builders and tradies are particularly hard to get with long order books, and serious shortages and delays in the supply of essential building materials.

Expect the bust when the sector falls off a cliff, as the excessive assistance is withdrawn post-election.

State and local government policies have also seriously compounded the sectors' difficulties by restricting the supply of land and other ineffective planning and land use regulations, zoning, including height limits, and poor and untimely administrative and approval processes.

To deal with this dysfunctional housing system, UNSW has recommended a Royal Commission on housing future Australia, with more focus and acceptance of responsibility by both the RBA and government.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.