Building houses on city fringes may be counter-productive to solving Australia's supply shortage, since most people want to live near the city, a Reserve Bank official says.
The RBA's head of financial stability says building approvals are running at an "extraordinary" annual rate of 200,000, driven by low interest rates and demand from very strong population growth.
But that population growth was coming mainly from international students, given tertiary education is one of Australia's biggest exports after coal and iron ore, Luci Ellis said.
"It's little appreciated just how concentrated that population growth has become in students and former students," Dr Ellis told a forum in Sydney on Monday night.
"Where do students want to live? Well it's not big family homes on the fringe, it's apartments in the inner areas near the universities.
"It's all very well to build more housing to accommodate the population but it has to be broadly comparable with where people want to live.
"Building housing where people don't want to live is counterproductive."
The consequence of this demand is that the cost of living closer to the city has increased, more so than in the past, Dr Ellis said.
Building new cities could be a solution, she said.
"Since when have we built new towns in Australia? Not since Canberra," Dr Ellis said.
"We don't do that anymore. There's plenty of good universities outside the major centres but they don't keep their population in the way that university towns in the US do."