The Liberal chair of a parliamentary committee has flagged tougher enforcement of rules prohibiting foreign purchases of existing homes, as both she and the Treasurer welcomed overseas buyers of new dwellings.

Speaking at a Bloomberg economic summit in Sydney, the chair of the House of Representatives Economics Standing Committee Kelly O'Dwyer says there has been worrying evidence of foreign investment restrictions not being enforced.

Ms O'Dwyer says the Foreign Investment Review Board (FIRB) has not mounted a prosecution or made a divestment order for breaches of the rules since 2006.

"If you have a framework in place, in order to give confidence to people more broadly in the Australian community, you have to have a regime that will be properly enforced, and so far FIRB have demonstrated that they have not been doing their job in that regard," she said.

"I think there has been a failure of leadership in FIRB. I think that they have not been proactive in the way that they have gone about their role."

The FIRB testified to the committee that it only had eight staff dedicated to reviewing thousands of foreign purchases of residential real estate.

Ms O'Dwyer says that is no excuse for the non-existent level of prosecutions for breaches, however she has raised the possibility of more funding for the FIRB's real estate monitoring.

She says the committee is looking at recommending a tougher civil penalty regime than the current fines of $85,000 for breaching the rules, which she says many investors regard as simply a potential "cost of doing business".

"We're actually looking at a sliding scale that would attach to the value of the property if people do breach the rules in place," she said.

"I think that money that would come in from any new penalty regime should be hypothecated to FIRB so that they have the right resources at their disposal, so that they can be far more proactive."

Ms O'Dwyer says the committee is also looking at introducing penalties for people who aid and abet foreign buyers in contravening the rules, such as real estate agents or conveyancers.

Treasurer denies bubble, welcomes foreign investment

Speaking at the same conference, the Federal Treasurer Joe Hockey welcomed foreign investment in new dwellings.

Mr Hockey says Australia "fundamentally doesn't produce enough housing", and that foreign investors were helping to plug the gap.

"In Sydney, Melbourne, to a lesser degree in Brisbane, you're seeing quite bit of new foreign investment into new dwellings," he said.

"That may well continue for some period of time, and certainly if the Aussie dollar comes off a bit it may well increase."

Mr Hockey also dismissed concerns about a housing bubble as "lazy analysis", citing a lack of new dwelling supply as the main culprit for large price increases.

Some analysts have raised concerns about rising house prices, particularly in Sydney and Melbourne and, this week, the Bank for International Settlements (which represents central banks globally) issued a report showing Australia had amongst the world's highest home prices by any measure.

Recently, the Reserve Bank has also signalled some worries about the housing market, with its governor Glenn Stevens warning about Sydney property investment, and also indicating that surging home prices are a barrier to any further rate cuts.

The bank's assistant governor (economic) Christopher Kent echoed those warnings, urging particular caution by property investors who are being lured into the market by record low interest rates.

"We're always careful to watch these sort of developments," responded Dr Kent.

"When you're making investment decisions make them with great care: don't assume prices will always go up; don't assume that the price increase we've seen in the past is a reflection of where prices will be going in the future; and don't always assume interest rates will stay low for the length of your loan."

However, Mr Hockey says he does not think there is a serious risk of property prices crashing.

"That's a rather lazy analysis because, fundamentally, we don't have enough supply to meet demand and that doesn't suggest there's a bubble," he responded.

"There might be a price increase of some substance, but you would expect the market to react by producing more housing, now state governments have got to do some of the heavy lifting here."