Sydney is currently experiencing rapid house price growth and properties are being snapped up at auction faster than you can say ‘sold’. But some economists say that it’s all happening too fast, fuelled by national interest rates that are too low for the city’s booming economy.

Terry Rawnsley, head of economic analysis at consultancy SGS Economics & Planning, reckons if Sydney could have its own interest rate set at a more appropriate level of 3.5%, property prices could be an average of $100,000 cheaper.

This will never happen, of course, because the RBA sets rates for the economy as a whole. We saw a similar two-speed economy situation a few years back when growth was concentrated in the mining states of WA and Queensland, he said, but now it’s focused on just one city.

“We’ve gone from having a mining boom propping up vast parts of the country to a Sydney boom concentrated in a very small geographic area,” Mr Rawnsley said. “It’s very much concentrated in the eastern suburbs and north shore.”

Although Syndey’s economy as a whole is benefitting from large-scale infrastructure investments, pockets of the city are being boosted further by thriving financial and insurance services whose employees are on the search for housing, he said.

In the past 20 years, house prices in Sydney have grown by an average of 7% per year. The years of price declines in that period are being counteracted by even stronger growth now – last calendar year the recorded growth was 11.5%.

The June quarter of this year saw Sydney’s median house price pushed back over the $1 million mark, according to reports from Fairfax Media-owned Domain Group, while the auction clearance rate for the city reached a 14-month high last week.

Sydnet’s property hot spots

The highest clearance rate of the week, 94.7%, was reported in North Sydney and Hornsby. The same sub-region had the highest number of auctions, with 111.

There were promising clearance rates from other inner suburban areas with high auction numbers as well, including the Eastern Suburbs (91.8%), City and Inner South (88.7%) and Inner South-West (83.7%), CoreLogic figures show.

Some further-out areas also reported impressive clearance rates, but from much smaller auction numbers – these include Baulkham Hills and Hawkesbury (94.1%) and Blacktown (92.3%).

Economists say this resurgent Sydney housing market is putting pressure on banking regulator APRA to again tighten credit to investors after it first did so in late 2014.

The recent interest rate cuts are intended to stimulate investment in parts of the economy that are struggling for traction, but it seems that Sydney is just jumping further ahead as a result.

Mr Rawnsley said that in an ideal world, Sydney would have a tighter local monetary policy to control house price growth while other areas should be relaxed further.

Melbourne would also benefit from a higher rate, he said; a city-specific rate of 2% in Melbourne would knock an average of $35,000 off house prices.

On the other hand, the current rate of 1.5% – despite being a record low for the country – is still too high for some cities with weaker economies. Mr Rawnsley has calculated that if the rate in Brisbane and Perth was dropped to 0.5%, house prices would grow by $65,000. The same rate would increase Hobart prices by $50,000.

The Adelaide housing market would benefit from an even lower rate, he said; prices could rise by an average of $60,000 if the rate dropped to 0.25%.

But remember, this is all just hypothetical in a country with a nationally controlled monetary policy.