We have been warned: the current housing boom risks ending in tears with the Reserve Bank forced to crunch it to save the rest of the economy from overheating. Its not a new warning from the central bank, but the time is approaching that the bank will stop being nice and bash the housing sector with a brutal rate rise (or rises) that surprises the deliberately deaf and ignorant in politics, business and the media.

It’s a bit rich when the only consistent voice warning us of the dangers of rapidly rising house prices, is the Reserve Bank and its senior officials and it’s really rich that these warnings have fallen on ears made deaf by conflicted self interest.

The bank’s head of economics, assistant governor Phil Lowe, was the latest in a growing list of senior central bankers out this morning warning of the dramatic impact of rising house prices.

He joins governor Glenn Stevens, deputy Ric Battellino, assistant governor Guy Debelle and head of research Anthony Broadbent, who in the past nine months all pointed to the dangers of rapidly rising house prices to the economy and to the country’s social fabric.

Stevens started the warnings in a speech last July:

“If all we end up with is higher prices and not many more dwellings — then it will be very disappointing, indeed quite disturbing. Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over-leverage and asset price deflation down the track.”

The evidence is, so far, that we have ignored this. It is not a case of the first home buyers stimulating prices, it is that state and local governments, existing home owners and others have restricted the supply of new land for housing on a range of grounds, from the political to environmental.

That in turn has boosted property prices, making those existing land and home owners richer and more determined to block the releases. As a result prices continue to rise, forcing the cost of all housing, new and existing higher. Rents are rising strongly again, and that will feed through into inflation. State and local governments do nothing except sit back and watch fee income and stamp duty receipts surge. Their warnings are hollow and conflicted.

Sure plenty of social policy groups issue warnings, but they lack the clout of the central bank. Their warnings are routinely picked up by the media, especially the Fairfax press and by TV news and current affairs, and then forgotten as the same media outlets breathlessly tell us of where the local and newest hot spots are, or where the bargains are to be found.

The approach of Fairfax and News Ltd is instructive: they weigh in with stories warning about the dangers of rising home prices, worsening affordability, and then publicise sales clearances, wonder houses, record prices and all the other ephemera of keeping readers in their real estate and money sections where listings of houses, apartments, loans and other deals generate millions of dollars a year in revenue.

The media in fact has an enormous conflict of interest in the real estate market: their publicity helps to power the real estate carousel, without it, the merry-go-round would slow and splutter.

Politicians talk about it and call for more land to be released, bag each other for hindering land development, the developers protest, but know they are in on the game itself of ever rising prices for land and homes. State and local governments are especially conflicted, especially in NSW, Queensland and Victoria where politicians put their hands up for political donations from eager developers.

At the same time state and local governments know that by spruiking real estate and by boosting the cost of land and homes, their stamp duty and fee income rises quickly, filling holes in budgets ravaged by the GFC, slowdown and silly investments in financial products marketed by American and local snake oil salesmen, such as structured credit products that were supposedly AAA rated and safe.

In his speech today, deputy Governor Philip Lowe said if “we do not change the mix of housing that is being constructed, it is likely that we will need to devote a higher share of GDP to housing than has been the case historically. If this does not happen, further adjustment in housing prices and rents is likely to occur to balance supply and demand.

“This raises two important issues that we need to think about. The first is the constraints that exist on increasing the supply of dwellings. If we are to build more dwellings, we need to ensure that planning guidelines and infrastructure provision can accommodate this.

“This will pose challenges for all levels of government. And the second issue is the capacity of the economy to deal with an increase in dwelling construction at a time when investment elsewhere in the economy is also very high.

“If housing construction is very strong at the same time that the resources sector is expanding, there will be competing demands for a range of skilled workers and specialised services. Managing these competing demands and ensuring the adequate supply of workers with appropriate skills will be a challenge.”

That’s central banker’s way of warning that if this surge in house prices (up 13.6% in 2009) is allowed to continue for much longer, then interest rates will go up very quickly and by more than the bank is hoping they will rise.

The Reserve Bank will be forced to bash the housing sector with a very blunt instrument, a series of rate rises that crushes demand for housing, slows domestic consumption and frees up resources for use in the expanding resources and other sectors of the economy.

That’s what the bank was in the process of doing in 2007 until the eruption of the credit crunch on August 9, two days after the RBA lifted the cash rate to 7.25%, its second last rate rise. The next was in September of that year as the election campaign started.

We can’t say we haven’t be warned. And if it does, watch the likes of the News Ltd and Fairfax papers react with fury on behalf of the battlers and listen for the various politicians to weigh in with crocodile tears of concern as well, with the likes of Al Jones, Steve Price and Ray Hadley leading the way among the shock jocks. All will profess amazement that housing is a mess.

The Reserve Bank and one or two other people have been warning of the dangers rapidly rising house and land prices could do to the economy by creating competition for resources wanted in the resources sectors. But these warnings have been ignored. Time is rapidly approaching when the RBA will act with a rate rise of 0.50%, even in an election campaign, just to control the sector.