Property and government leaders at The Australian Financial Review Property Summit in Sydney have expressed concerns about the possible impact of tight lending restrictions on the housing market and the overall economy.

Mirvac chief executive Susan Lloyd-Hurwitz was one of those who criticized the overly stringent lending restrictions, saying these are very painful for customers.

"Personally I just settled myself, and it was a very painful process. It's torturous. People tell us about being assessed on how many coffees they drink. It can get nonsensical about how much scrutiny there is," she said.

Also read: APRA To Review 7% Lending Criteria

Lloyd-Hurwitz said strict lending rules could cause a dent in housing supply.

"Credit history in Australia is very good, some of the lowest credit loss ratios in the world. Very soon we are going to be in a supply shortage situation," she said.

One of the issues brought up was the Australian Securities and Investments Commission’s (ASIC) appeal against the dismissal of its case against Westpac for approving mortgages without adequate credit checks. Stockland chief executive Mark Steinert said this was "really problematic" and it seemed regulators are not interpreting the law correctly when looking at how banks assess home-loan applications.

Also read: Investors Are Returning To The Housing Market

"As the treasurer said, caveat emptor — we need to allow judgment in lending if we want the capital system to work efficiently," he said.

Treasurer Josh Frydenberg warned regulators not be "overly sheepish" in enforcing lending restrictions, saying it could further weaken the country's economy.

"Should responsible lending laws be applied too stringently, they will also negatively impact consumer behaviour. It is in everyone's interest that the aspirations of hard-working families are not collateral damage in this regulatory process," he said.