The Reserve Bank has sounded another warning about Auckland's surging property market and signalled interest rate hikes are not out of the question if it threatens to get out of hand.
In a speech to the Employers and Manufacturers Association in Auckland, deputy Governor Grant Spencer said the country needs to avoid a costly housing boom that could damage the economy and financial system.
House prices have surged close to record levels recently, though much of that pressure comes from Christchurch and Auckland, masking a more modest recovery in the rest of the country.
Mr Spencer said rising prices in Christchurch have been caused by supply shortages due to major earthquakes damaging the housing stock.
Auckland's housing surge presents a problem the Reserve Bank is keen to avoid.
Mr Spencer said it's less a supply problem, and more one driven by low mortgage rates and easier credit.
It's the type of situation that, if left unchecked, the Reserve Bank fears could result in an housing crash, damaging banks' financial strength and putting further strain on an economy weighed down by an overvalued currency, drought and cuts in Government spending.
The bank is already seeking feedback on a suite of new tools to dampen the risks of a credit boom, including limiting high loan-to-value mortgages of more than 80%.
But, while the bank believes these tools can help, Mr Spencer reiterated they are not as powerful as its main lever - the use of the official cash rate to lift the cost of borrowing and cool an overheated property market.
Most economists don't expect the Reserve Bank to lift interest rates until next year.