Are you worried about the heat in Australia’s housing market?

So, it seems, is the Organisation for Economic Co-operation and Development.

In its latest economic survey of the country, the OECD emphasises the housing market could pose a risk to the economy.

While it describes Australia’s economy as well-managed and successful, the report says it is necessary to look to non-resource sectors for future growth.

The economy is slowing as the mining boom recedes and the OECD forecasts growth of about 2.5% in 2015, compared to 3% in 2014.

Macroeconomic policies have worked well for the economy, the report says.

“Inflationary pressure is contained, while low interest rates are supporting activity and the rebalancing of growth.”

However, the rapid rise of house prices by about 10% over the past year concerns the OECD.

It notes that, although the growth in house prices has promoted construction activity, it has also attracted speculative demand.

The report recommends that:

  • Intensive monitoring of the housing market should continue – and there should be intervention if appropriate.
  • Macro-prudential tools should be used, if necessary, to cool off the demand for housing credit.
  • Financial sector conditions should be examined with a view to improving credit quality and competition.
Meanwhile, the report’s author, Philip Hemmings, also told media that Australia urgently needed to reform its tax system to assist economic growth.

The tax system needs to be more efficient and competitive, while the burden on household incomes and businesses needs to be reduced, he said.

A shift to raising GST and revenue from other indirect taxes, over the longer term, would be of particular benefit.