Research by the Institute of Public Affairs says the fall in house prices in the United States has left Sydney as the most expensive housing market in the world.

Analysing data from US-based consultancy Demographia - which examines house prices from 159 urban areas around the globe - it said Melbourne, Perth, Brisbane and Adelaide are also in the top 10 most unaffordable cities following the US sub-prime crisis.

The average Sydney home costs over eight times the average household income in that city.

IPA director of the deregulation unit Dr Alan Moran said misguided government polices were the culprit of Australia's unaffordable housing market.

He said the cost of Sydney homes was inflated by laws which restricted the availability of land, imposed lengthy bureaucratic procedures, increased the cost of building new homes for environmental requirements and charged high taxes "masquerading as development levies", Dr Moran said.

"These measures are preventing all but the most affluent young buyers from getting a toehold in the housing market," he said.

"It is clear that regulatory restrictions are fuelling the high cost of building new homes."

He said areas like California and Britain had seen recent price collapses and were seeing fewer and fewer new homes built.

"By contrast, (US) cities with few regulatory restrictions - such as Atlanta, Houston and Dallas - have seen stable prices in the housing market," Dr Moran said.