After a speech at the annual meeting of the Institute of Directors, the chancellor was asked whether he should be urging the Bank of England to take measures to calm the market down.
The Bank, Osborne insisted, should be "alert to risks but let's not pretend there is a housing boom," he said in response to the question from the IoD's director general, Simon Walker.
The comments came a day after the Office for National Statistics showed the average price for a house had risen to £245,000, boosted by Osborne's Help to Buy scheme.
Last week the Royal Institution of Chartered Surveyors urged the Bank of England to cap national house price growth at 5% per annum to curb the risk of another unsustainable boom.
Osborne defended his actions to stimulate the market: "We need more housing because there are many people who have a legitimate reason to own their own house … we want to support them."
He said the Bank of England, whose financial policy committee meets on Wednesday, would be reviewing any risks to the wider economy.
Osborne went out of his way to court favour with the hundreds of IoD members who packed the Royal Albert Hall in London and urged them to help him face down those "siren voices" who wanted the chancellor to let up on his austerity programme.
"Your voice, the voice of business, needs to be heard in the battle. I need British business – you in this room – to stand with me and say we cannot let up.
"If we want a better future for Britain and better living standards for our people, then we've got to go on taking the tough decisions to invest and grow."
Earlier Walker had urged the government to reform the European Union so that it was more responsive to the needs of business.
But he admitted that a poll of his members showed that only 15% would vote for a full withdrawal from the EU by Britain: "There is very little appetite for such a policy."
Osborne promised to pursue reform in Brussels but said there was no "shopping list" yet of concrete demands the government would be making.
guardian.co.uk © Guardian News and Media Limited 2010
image: © altogetherfool