The comments follow the Reserve Bank of Australia's decision to issue a storm warning on Friday to inner-city apartment owners and their lenders over a looming oversupply of units that many analysts believe will lead to falling prices.

Banks are already cracking down on lending to the sector and analysts are increasingly concerned the long pipeline in apartment approvals over the past two years means supply of new units will continue to grow through the rest of 2016 and 2017. Any reductions in new starts will only become apparent in lower supply from 2018 onwards.

Mr Richardson said everyone in Australia knows that too many apartments are being built and that "there will be a shakeout".

Perverse incentives

He said this was creating perverse incentives for developers.

"If you are building apartments now you want to sprint, absolutely get across that finish line and flog yours as fast as you can, leaving problems for those coming down the track," he said.

Mr Richardson, who will release Deloittes' latest quarterly business update on the Australian economy on Monday, says too many of the things Australia depends on are now "priced for perfection".


"The higher go the prices for iron ore and coal and homes in Sydney and Melbourne, the greater the risk that something goes wrong down the track."

Rejecting arguments that current housing price gains are being driven by increased demand or weak supply, Mr Richardson insisted that the single most important factor remains low borrowing costs.

"As the cost of money has gone increasingly close to zero, the cost of housing has increasingly gone atmospheric," he said.

"At some stage, interest rates will be a chunk higher than they are today. That does mean housing prices in Australia have to live through a very long period of headwinds.

"The costs and benefits of this increasingly Faustian bargain are starting to worry us.

Mr Richardson urged people against assuming the current levels of price gains and low interest rates will continue. "People should not think that current conditions are normal in financial markets," he said.

"And every time you price that into the house you buy or business plans you make, there's more risk in that than is widely recognised."