When the music stops, you don't want to be the government when Australians determine that the younger generation won't realise the dream of home ownership, writes Darrin Barnett.

Government can be a bit like a booby-trapped game of pass the parcel. On certain issues all you can do is pray that the game continues while you're in power.

When the music stops, you don't want to be the government when Australians determine that the younger generation won't realise the dream of home ownership.

Those in the Abbott Government will be praying they're not holding the parcel at this pivotal stage.

It is easy, nevertheless, to lull yourself into a false sense of security.

Thousands of Australians will this weekend follow the national past time of reading the real estate pages, inspecting open houses, or attending auctions.

Our collective fascination with the property market is legendary and has historically delivered great riches to those who can afford to play.

It's our version of the yellow brick road - the path to prosperity in Oz.

Our obsession with housing makes it an exquisitely sensitive political subject.

The famously cautious John Howard was forced into a rare display of saying sorry during the 2007 election for a series of interest rate rises, just three years after he famously declared rates would always be lower under a Liberal Government.

Of course we have been warned for years that ballooning house prices pose real danger to the economy.

With so many Australians stretching themselves thin despite historically low interest rates, massive problems could crop up if unemployment rises, wages stagnate, cost of living increases, or rates head upwards.

The obstacle to government action, however, is that one third of the electorate have bought their house and paid for it, and one third have bought it and are paying it off. The other third are scattered across rental and other forms of housing.

In other words, at least two thirds of voters desperately want house prices to rise. It's hard for governments to move against their wishes, no matter how responsible such action might be.

But the real bottom line is this: you don't want to tell Australian parents their kids won't be able to buy a home.

WorkChoices was unpopular because parents were worried about their kids' future. Kids being locked out of the property market would mean difficult times ahead for the Abbott Government.

Two sets of figures released in the past week raise that spectre. First, Domain Group reported that Sydney and Melbourne's auction market results slipped below 80 per cent two weekends ago - their lowest clearance rates for two months.

Two months isn't long but spring is considered to be boom time in real estate.

Of more concern, however, were figures released by the Australian Bureau of Statistics (ABS) that showed investors have flooded the market at the expense of first home buyers.

In fact, the share of home loans taken out by first time buyers in Australia has fallen to its lowest level since records began in 1991.

They accounted for just 11.8 per cent of the mortgages approved in August, while investors rose to a record high of 40.6 per cent.

And with house prices surging by more than 10 per cent in the past year in some parts of Australia, first home buyers are struggling to find a foothold.

RP Data research director Tim Lawless said the broad slowdown in first home buyer demand can probably be attributed to a few factors:

With dwelling values rising at a time when average wages aren't rising anywhere near the same pace, affordability constraints are dampening first home buyer demand. This is particularly the case in Sydney and Melbourne where dwelling values have risen substantially.

The Reserve Bank warned in September that soaring strong housing prices and increasing investor activity could pose risks to the economy. They said:

The composition of housing and mortgage markets is becoming unbalanced. The apparent increase in the use of interest-only loans by both owner-occupiers and investors might also be consistent with increasingly speculative motives behind current housing demand. At this stage the main risk from this strong investor activity appears to be that the extra demand may exacerbate the housing price cycle and increase the potential for prices to fall later.

The RBA said it would begin talks with the Australian Prudential Regulation Authority (APRA) about how to reinforce sound lending practices for property purchases.

Yet there is no easy solution. Allowing prices to fall to affordable levels for young Australians with average incomes would present its own problems.

Rising house prices lead to rising consumer confidence through what is known as the wealth effect.

During the Howard-era housing boom, which peaked some time around 2003, consumers were using their homes like ATMs, and borrowers were handing out more than the value of the home as a loan.

Australians were in a buoyant mood and continued to spend like drunken sailors.

But when the Global Financial Crisis hit and house prices fell 2.6 per cent in the June quarter of 2008, consumer confidence also took a hit.

Plummeting housing prices brings with it a collapse of building investment and construction, which can lead to recession plus a whole lot of people with a prized asset worth less than what they paid for it.

It was no coincidence that much of the Rudd Government's stimulus measures were directed at encouraging participation in the housing market through the First Home Owners Boost and helping to keep the roughly one million workers linked to the building and construction industry employed through the downturn via Building the Education Revolution and the Social Housing construction program.

At the moment, we haven't seen any attempts by the Abbott Government to intervene in the market. After all it's against their nature as free marketeers.

But if the perception is that a generation of Australians have been locked out of the housing market takes hold, they would be wise to have a plan.

It's a tough problem, but governments are expected to solve tough problems. Or at least be seen to try.

Darrin Barnett is a former Canberra Press Gallery journalist and was advisor to then housing minister Tanya Plibersek from 2007-10. He is now a fellow of the McKell Institute. View his full profile here.