The Bank of England has the powers to prevent a new housing "bubble" developing, the Prime Minister said, after its governor Mark Carney suggested it was the biggest risk to economic recovery.
Speaking to Sky's Murnaghan programme, David Cameron said: "We have given the Bank of England the duty to make sure that bubbles are dealt with in the economy. They have all the powers they need to do that.
"He (Mr Carney) is absolutely right when he says fundamentally we need to build more houses in Britain".
The Government's "unwise" Help to Buy scheme has been criticised amid the Bank of England governor's warnings of a property "boom".
Sam Bowman, research director of the Adam Smith Institute, said: "Mark Carney's comments on house prices are timely and accurate: the house price boom in London, the south-east and the East Midlands is fundamentally down to a lack of housing."
He added that the "supply-side crisis" meant it was up to the Government - not the Bank - to bring prices under control, and called for a rolling back of the green belt to create space for one million homes.
Mr Bowman said that while Help to Buy was "probably too small to make a substantial difference to house prices" it was "inflating demand without increasing supply".
Ed Balls has warned that interest rates may have to rise if the government does not act to ease the current property "boom".
The Shadow Chancellor said: “Mark Carney is right to warn about the risks to our economy of a lop-sided housing market where housing demand hugely outstrips supply.
Mr Balls said the Governor's comments put the ball in George Osborne's court, adding that the Government should cut the Help to Buy limit to £600,000 and introduce an additional "Help to Build scheme".
“Unless the government acts the danger is that the Bank of England will be forced to raise interest rates prematurely.
The government's controversial Help to Buy scheme is "providing desperately needed homes", the association representing property builders has said.
Home Builders Federation Executive Chairman Stewart Baseley said: "The Help to Buy Equity Loan scheme has supported demand for new build homes and its extension provides certainty about longer-term demand.
Mr Baseley said the scheme is helping the industry "plan ahead, rebuild capacity lost in the downturn and deliver".
Nick Clegg has told ITV News Mark Carney should have the final say on whether the controversial Help to Buy scheme should be scaled back.
In comments that appear to contradict Chancellor George Osborne's defence of the programme, Mr Clegg said: "If Mark Carney - in view of his concerns about the housing market - thinks we should scale back on some of those schemes, that's exactly what we should do."
The government housing scheme blamed by some for inflating house prices should be "pared back" if the Bank of England advises it, Deputy Prime Minister Nick Clegg has said.
In a BBC One interview, Mr Clegg said: "If [Bank of England Governor Mark Carney] says we should pare back on some government schemes like Help to Buy then I think we should do that.
"He's certainly right when he says the big problem is that we simply don't build enough homes in this country," the Lib Dem leader added.
Property prices in England and Wales have increased by 12% since they bottomed out five years ago.
According to figures from the Land Registry, average the value of the average home stood at £169,124 in March this year.
That is up from £150,490 in April 2009 - the lowest point following the crash that began a year earlier.
Price increases have been quickening as the economic recovery has taken hold, with stronger demand leading to a surge in values.
Britain's booming housing market represents the "biggest risk" to the economic recovery, Bank of England Governor Mark Carney has warned.
With approvals for large mortgages on the increase, Mr Carney expressed concern about the dangers of another "big debt overhang" building up.
In an interview with Sky News's Murnaghan, to be shown tomorrow, he said there was little they could do about the "deep, deep structural problems" in the housing market, with demand for homes outstripping supply.
Mr Carney surprised some analysts last week when he played down the prospects of an early rise in interest rates - despite the fears of a housing market bubble.
Interest rates are "likely to remain low for some time" but the UK has "edged closer" to a rise, Bank of England Governor Mark Carney told ITV News' Economics Editor Richard Edgar.
He added that "today is not the day" to rise interest rates and the exact timing of the first rise "will be a product of the evolution of the economy".