In his strongest warning yet about the issue, Mr Fraser said he was concerned about the consequences of current historically low interest rates on investment activity. The proliferation of home renovation shows was a sign that things were "amiss," he said. "When you look at the housing price bubble evidence, it's unequivocally the case in Sydney, unequivocal," Mr Fraser said. "It does worry me that the historically low level of interest rates are encouraging people to perhaps over-invest in housing." Reserve Bank assistant governor Dr Malcolm Edey told senators: "I know that a lot of people do think it's a bubble.

"Serious people think that. And we agree that this is a situation where the market is strong, it's over-heated, it's a risky situation. Some people call that a bubble." When asked by Labor leader Bill Shorten about Mr Fraser's comments, Mr Abbott said housing affordability was important but home owners like him would prefer to see house prices continue to rise. "As someone who, along with the bank, owns a house in Sydney I do hope our housing prices are increasing," Mr Abbott said in question time on Monday. "I want housing to be affordable but nevertheless, I also want house prices to be modestly increasing. "The best way to make housing more affordable is to keep interest rates low and stable and that is exactly what is happening."

He added: "The important thing is to ensure that our economy is as strong as possible so that people have as much resources at their disposal as possible, have jobs, so they can go out there and buy the things they need, including the housing that they need." Labor Leader Bill Shorten leapt on the comments, saying the Prime Minister was out of touch. "I wonder what a young family in Sydney or Melbourne looking to buy their first home thinks of the Prime Minister saying he wants house prices to go even higher? He just doesn't get it," Mr Shorten said. Earlier in the day, Mr Fraser said the housing bubble issue was "rightly" getting a lot of attention from the Reserve Bank and Australian Prudential Regulation Authority. He also dismissed suggestions that negative gearing was to blame for the rate of growth in Sydney house prices, saying the historically-low level of interest rates and easy access to finance were driving house price increases.

He said negative gearing was popular because of the high levels of personal income tax. In October last year, Luci Ellis, the RBA's head of financial stability, refused to use the word "bubble" in senate estimates. "I don't think that's a particularly helpful way to frame the problem," Ms Ellis told senators. "What matters is how much speculation there is in the market and what that might mean for a subsequent price cycle, and at the moment there is more speculative activity than we are comfortable with."