Few care to admit it, but huge property prices lie at the heart of our economic ills. And if there's another interest rate cut it will only entrench an underclass, writes Ian Verrender.

Mateship and egalitarianism. It's what Australia was built upon.

Never mind that it's mostly always been a myth. Or that during the past 20 years, not only has our wealth distribution been less fair than most developed nations, it is likely to be getting worse.

While real estate agents and homeowners have been rubbing their hands in glee for the past three years, Australia's soaring property market has left a vast swathe of our young disheartened and disillusioned.

One of the least considered effects of the capital city housing market boom is the potential it has to entrench wealth and to undermine social cohesion in the future.

It's never been easy to buy a house. But we have now reached the point where, for those without an inheritance, it is nigh on impossible to save enough for a deposit let alone earn enough to cover the mortgage.

The once humble, suburban family home has been transformed from a place of shelter to a store of enormous wealth. It has become a source of hard currency.

From now on, unless there is a violent market correction, only those lucky enough to have forebears with city property will share in that bounty.

There's nothing wrong with one generation wanting to pass on the fruits of their labour to their children.

But when an entire generation are denied opportunity - primarily because of poor policy - then it is time to at least reverse the incentives that have distorted the market.

With interest rates at record lows and banks again accessing securitisation and wholesale debt markets to import cash, the frenzied buying shows no sign of abating.

While regional property markets generally have stagnated, capital city house prices rose almost 8 per cent last year alone, led by Sydney and Melbourne.

Sydney recorded gains of 12.4 per cent, which followed on from even stronger gains the previous year of 14.5 per cent that has left many aspiring homeowners permanently locked out of the market.

It is worth noting those gains were built on what some analysts considered back then to be a market in bubble territory.

The buying has been dominated by investors - many gearing up superannuation funds or using negative gearing - sidelining younger Australians and those from outside the cities.

There has been a great deal of dispute in recent months about the accuracy of official statistics on first-home buyer activity. Many argue the Australian Bureau of Statistics has grossly miscalculated its claims that first-home buyers have been all but absent.

That may be true. But that debate is largely irrelevant. For it conveniently ignores how any twenty something starting from scratch could on their own endeavours afford the mortgage on a dwelling valued north of half a million dollars.

Without a benefactor, the future for young professionals or successful tradespeople on decent salaries will be one of permanent renters to a class of inherited property owners.

Worryingly, our central bank helped spark this latest property spike, specifically targeting housing as a potential economic saviour to the inevitable wind-down of the mining construction boom.

It's worked, to a degree. But the broader economy remains stuck in first gear and more interest rate cuts may be required, possibly as early as tomorrow, which will only send property prices further into orbit.

Concerned it may be. But the Reserve Bank has done little to curb the boom. Through the banking regulator, it belatedly imposed, but never really enforced, soft lending restrictions on our banks in a half-hearted attempt to dampen speculation and rein in the boom..

It now finds its broad economic management strategy hopelessly compromised, caught between fuelling an obvious housing market bubble or doing nothing to stop economic growth from stalling.

Few care to admit it, but exorbitant property prices lie at the heart of our economic ills.

The business lobby and media commentators bemoan our high costs. Almost universally, though, they target the soft edges. Cut wages, eliminate penalties, reduce conditions. It is a simplistic, narrow view that conveniently ignores the potential damage and repercussions such a policy would cause.

Australian wages are high because workers need to pay rent to live in some of the world's most expensive housing.

Business costs are high because business needs to rent some of the world's most expensive office and commercial space and pay wages to workers who need to feed the mortgage machines that our major banks have become.

Wages for most of the past year have been declining in real terms. They've only recently slipped back into positive territory because inflation has fallen.

A wage cut or a reduction in penalty rates may provide a shot to profits in the short term. But discretionary spending would be hit. Defaults on home loans would rise. And our banks would find themselves in a world of pain.

According to the Organisation for Economic Co-operation and Development, wealth inequality has been on the rise throughout the western world since the 1980s.

And while Australians generally view themselves and their society as one of the world's fairest, we have been a poor performer when it comes to wealth equality.

Since 1996, we have been consistently worse than the OECD average. And from 2004 - when the mining boom gathered pace and capital city property values soared - the situation rapidly deteriorated.

It improved from 2008 until 2011, the final year when data was collated by the Australian Bureau of Statistics. But we all know what has happened to property prices since then.

According to the ABS 2011 survey that formed the basis of that OECD study, owner-occupied housing was the major asset held by Australian households.

It accounted for a whopping 43 per cent of all wealth, a dangerous concentration on any measure.

We now find ourselves in a hopeless dilemma.

Australian households, and by consequence our banks, are hugely vulnerable to a property market collapse, an event that would send shockwaves through the financial system.

But if we continue to artificially inflate real estate values, simply to protect the system, we risk creating a permanent underclass for future generations and price ourselves out of the global market.

Ian Verrender is the ABC's business editor.