George Osborne has indicated he will not act to cool the housing market and instead lay responsibility at the door of the Bank of England.
The Chancellor said the central bank "should not hesitate" to use its powers to tackle any house price bubble but suggested he would not directly intervene despite growing concerns about the possibility of strong rises in values leading to a crash.
House prices have leapt 8.5% over the year to April and now stand at an average of £177,648 while sales have lifted to their strongest levels in six years.
Three former chancellors have raised concerns that the Government's Help to Buy mortgage guarantee scheme, which provides support for home purchases of up to £600,000 where buyers are struggling to raise deposits of more than 5%, could create problems in the market.
Mr Osborne told BBC Radio 4's Today programme: "Housing has always been a real challenge for Britain and a problem in the British economy because the supply of housing has not matched the demand for housing.
"Now, the answer to that is to increase the number we build to make sure that families can afford to get on the housing ladder but I have also given the Bank of England tools to intervene in the housing market to ensure economic stability.
"They should not hesitate to use the tools that I have given them if they think it will help with economic stability. That's for them to make the judgment but let's not repeat the mistakes of the past, let's make sure we have learnt those lessons."
Asked if he would intervene, he replied: "Mark Carney (Bank of England governor) and the financial policy committee are very qualified people to make this judgment and my job as the Chancellor, the job of Parliament, is to give the Bank of England the tools to do the job. Let them make the assessment."