Concerns of a bubble in Australia’s housing market are overblown according to a senior official from the Reserve Bank of Australia (RBA), who believes the market is in a better position than it has been in recent years.

Speaking at the Urban Development Institute of Australia (UDIA) National Congress 2016 this week, RBA deputy governor Philip Lowe said Australia’s housing market currently has a better balance of supply and demand compared to when he spoke at the conference in 2010.

Lowe admitted at the conference that there had been a large “run-up” in house prices in Sydney and Melbourne, but an increase in supply, coupled with a slowdown in population growth, has helped to avoid any price bubble.

Increased housing construction has also put downward pressure on rents. The CPI measure of rent inflation, according to Lowe, sat at 1.2% in 2015.

“Whether or not these trends are maintained remains to be seen, and so we continue to watch developments in the housing market very closely. However, the overall picture does appear to be one of a better balance between supply and demand than was the case in 2010,” Lowe said.

“Since then, population growth has slowed, and the rate of growth in the dwelling stock has increased so that it now once again exceeds that of the population,” he said.

While the residential construction boom has helped ease supply and demand pressures, Lowe said it is predicted to soon enter a stable easing period.

“It is unlikely to be in our collective interest to have a further surge in the construction of new dwellings, as a share of the economy, then to be followed by what would surely be a larger and more prolonged decline later on. Overall, the recent data on building approvals suggest that we are on a reasonable path here,” he said.

Housing supply and demand may currently be relatively well balanced in Australia, but Lowe said Australia will faces challenges in the future as affordable and well-located land becomes rarer.

“From a longer-term perspective, the challenge of providing an adequate supply of reasonably priced housing for an increasing population rests largely on the flexibility of land supply and, in particular, the supply of well-located land,” Lowe said.

“This is because high housing costs largely reflect high land prices, not high construction costs. Here, it is zoning regulations and the transportation infrastructure that can make a material difference. In both areas, progress has been made since 2010, but there is more to be done.”