China is able to avoid a housing bubble by increasing the number of first tier cities with a population cap, a former senior official suggested on Friday.

Yao Yudong, former head of the Research Institute of Finance and Banking under the People's Bank of China, the central bank, said in order to better control the heated real estate sector, the number of first tiers could be increased to eight, each with a 20 million population cap amid low inventories and limited land supply.

Yao said a total of eight cities, with capacities to accommodate around 160 million people, was good enough to relieve pressure in the first tiers, referring to Beijing, Guangdong, Shanghai and Shenzhen.

"Resources in the the Big four are getting limited and could hardly meet the demand, exerting pressure on housing prices," Yao said.

Yao said although price surges in the first tiers had yet to create a housing bubble, bubble-like situations were posing risks to the world's second largest economy.

Housing prices in the first tiers had increased more than 40 percent at the end of June, compared to the same period last year, according to an estimation by the China Index Academy, a property research organization.

Yao made the comments after local governments in 21 cities announced property market cooling measures in the first week this month, in an effort to douse fears about a real estate bubble in China.

"But temporary restrictions on purchase are not enough to resolve rooted problems in the property market," he told China Daily, "the simple fact is that the rising demand cannot be met with low inventories and limited land supply—there should be more sustainable solutions to deal with that."

Yao said local governments were able to improve attractiveness by providing better public services and creating more jobs.

"It is not a central government led project," Yao said, "the new first tiers are not expected to be picked by the central government—it more depends on how local governments are willing to make efforts."

"And it will not take long to see new four cities join the first tiers, before the housing bubble appears, if there is any," he said, "some second tiers have been catching up."