Sydney home prices have started falling, having risen by around three-quarters over the past five years.

Australia and Canada have a lot in common when it comes to property — both nations have record housing debt and have had surging prices in two of their key cities.

But there are some key differences in housing policy and financial practices that may make Australia more vulnerable to a housing crash.

These differences have been highlighted by the chief executive of Canada Mortgage and Housing Corporation (CMHC), Evan Siddall, who was the keynote speaker at a recent conference hosted by the Australian Housing and Urban Research Institute (AHURI).

In an exclusive interview with the ABC, Mr Siddall touched on four reasons why Australia might be more vulnerable to a severe housing downturn than Canada, as well as one key area where both countries are taking a similar approach — foreign investors.

Australians have more debt than Canadians

Canadian households have a lot of debt, in fact their debt is slightly bigger than the annual output of the nation's entire economy, 101 per cent of GDP.

That debt level is twice as big as it was at the start of the 1990s.

Mr Siddall said it is a key concern for Canada's policymakers.

"We're not proud of the level of indebtedness in Canada and we're quite concerned about it — it's even higher in Australia," he observed.

Australia's household debt is 122 per cent of our annual economic output — that level has surged much more than two-and-a-half times what it was at the start of the 1990s.

Why is this a problem?

"Because debt is basically spending future income — what you're doing is you're mortgaging your future economic growth," Mr Siddall explained.

"The correlation between high house prices and high indebtedness and a future economic recession is extremely high."

Evan at record low interest rates, Australian and Canadian households are struggling with the burden of large interest bills.

In Australia, this is already showing up in weak consumer spending which is dragging on economic growth.

That is a trend that will only get worse as rates eventually rise back towards more usual levels.

Australians 'vulnerable' to rate shock, Canadians less so

Rising interest rates is another area where Canada may have an advantage over Australia.

Not only are Canadian households less indebted, but they also tend to have fixed-rate mortgages.

"Seventy-five per cent of our mortgages are five years or longer and so, even in the event of a rate shock, we only have about 25 or 30 per cent of mortgages that come due every year and are required to be refinanced and therefore exposed to that interest rate risk," Mr Siddall explained.

When told that somewhere around 80 per cent of Australian mortgages were on variable interest rates, Mr Siddall was taken aback.

"That is a vulnerability," he responded.

"That makes Australian mortgage holders more subject to rate shock than they would be here in Canada."

Canadians are currently being tested, with the nation's central bank having lifted rates twice in the second half of this year.

Although Canadian interest rates remain lower than Australia's official cash rate, at 1 per cent versus 1.5 per cent.

Australia's tendency towards variable mortgages was seen as a strength during the global financial crisis, as it meant most households got an immediate benefit from the Reserve Bank's dramatic interest rate cuts, but it means Australians are immediately vulnerable as global interest rise back to more typical levels.

Canada insures its banks' risky loans — and charges for it

As highlighted during the global financial crisis, many large banks are considered "too big to fail" and will be bailed out if a housing market crash leads to large losses.

Australia's big four banks benefit from this implicit guarantee by receiving lower interest rates when they raise money on international markets — their credit ratings are effectively linked to the Australian Government's.

Mr Siddall said that creates what economists call "moral hazard".

"There's an incentive for people to lend rather less prudently because they believe they can count on a government bailout," he explained.

Canada also has banks that are too big to fail and would probably be bailed out if they got into trouble.

However, it also requires banks to take out mortgage insurance on all low-deposit home loans (less than 20 per cent deposit).

CMHC provides that insurance, along with two private competitors.

"At the end of the day, when it comes to home owners in a house price crash the government is going to end up paying for that, because home owners are taxpayers, as opposed to banks which we should let fail," Mr Siddall argued.

"It will be unbelievably tempting for politicians, and I think probably responsible for politicians, to help support home owners in the event of a generalised housing crash.

"We collect premia for that at CMHC and we contribute about $2 billion a year to reducing the Federal Government's deficit."

In Australia, both lenders' mortgage insurers are privately owned — the Government gets no premiums, but would probably still be on the hook to bail out the big banks if the housing market crashed and one or both of those insurers collapsed.

CMHC also has monopoly control over selling Canadian residential mortgage backed securities, which are a key source of funding for home loans.

In Australia these securities are sold by banks and non-bank mortgage lenders, which limits regulatory control of the amount of mortgage funding available.

Canada has a national housing agency, Australia doesn't

Another potential advantage Canada has over Australia is the CMHC itself.

Not only does it do mortgage insurance, but also runs Canada's national housing affordability programs and provides policy advice.

"Being able to look at the whole spectrum, from homelessness to home ownership, means that we can have a comprehensive, integrated strategy," Mr Siddall ventured.

AHURI's executive director, Dr Ian Winter, agrees that Australia lacks national coordination in housing policy, especially when it comes to new housing.

"Whilst we're getting a fair bit of new supply — over 200,000 completions over the past couple of years, which are historical highs — most of the new stock is overwhelmingly at the high price end," he said.

"So we're not seeing either new supply at lower price segments or indeed any evidence that there's a trickle down of that new supply or of people vacating existing supply so that we're getting some sort of flow through of dwellings to first home buyers, for instance."

However, Dr Winter said the National Housing Finance Investment Corporation, a Federal Government-backed bond aggregator, will improve access to finance for affordable rental housing projects.

Both countries limit lending, tax foreign buyers

While Australia and Canada are tackling their housing affordability problems in different ways, they have tried some common approaches.

One has been for banking regulators to improve lending standards by getting banks to use tests when assessing how much prospective home buyers can afford to borrow.

"Prudential underwriting is the first line of defence and I think both countries have got better and better at that," Mr Siddall said.

The booming areas of both countries have also put special taxes on foreign buyers of residential property — in Vancouver and Toronto in Canada and through increased stamp duties in New South Wales, Victoria and Queensland in Australia.

Mr Siddall said the taxes in Canada appear to have just brought forward some buyers' investments, but now foreign demand in Vancouver is back where it was before the tax.

"These are politically expedient measure but ultimately not that effective," he said.

"We know in Canada that there is more speculation activity and investment activity being done by domestic Canadians than non-Canadians and so these policies aren't the solution."