The hot property market should not be a constraint on further RBA interest rate cuts, according to AMP’s chief economist Shane Oliver.

The main argument against further cuts has been the hot housing market, but while the strength of Sydney is continually in the spotlight, the rest of Australia is still lagging behind.

Oliver said that even though house prices have increased, many have been looking for scapegoats.

“These don’t really stack up,” he said.

“Negative gearing has been around for a long time and while foreign and SMSF buying has played a role, it looks to be small.

The main reason behind the slow supply response appears to be tough land use regulations in Australia compared to other nations, said Oliver.

He said there are some offsetting factors, so the property market should not be a constraint on further RBA interest rate cuts.

“First, home price gains are now narrowly focussed on Sydney. According to CoreLogic RP Data, Sydney home prices rose 13.9% over the year to March. But growth across the other capital cities ranged from 5.6% in Melbourne to -0.8% in Darwin with an average of just 1.5%,” he said.

“Second, growth in housing debt is running well below the pace seen last decade, and there are some signs of a loss of momentum in the last few months. Investor debt is up  10.1% year on year but reached around 30% through 2003 and in the last few months has slowed to an annualised pace of 9.3%.”

Oliver said real house prices have been running well above trend since the early 1990s and now sit at 14% above trend. According to the 2015 Demographic Housing Affordability Survey, the median multiple of house prices to household income in Australia is now 6.4 times, versus 3.6 in the US and 4.7 in the UK.

Oliver expects the cash rate to fall to 2% in May with a strong possibility rates will fall below 2% later this year, as the slump in mining investment intensifies, non-mining investment remains weak and iron ore prices remain deflated.