The economy would be doing much better if it were not for soaring Auckland house prices, according to economist Shamubeel Eaqub.
The Government continues to play down the impact of rising house prices in Auckland, saying there is no crisis.
But Mr Eaqub, principal economist at the Institute for Economic Research, told Morning Report if it it were not for that, the economy would be doing much better.
"Auckland housing market is definitely holding the rest of New Zealand to ransom. We would have lower interest rates, lower exchange rates, stronger exports and stronger business investment if it weren't for what's happening with house prices here."
The Reserve Bank of Australia has cut its official cash rate to a record low of 2 percent but Mr Eaqub said the state of the Auckland market made a similar move unlikely in New Zealand.
Labour's finance spokesperson Grant Robertson said the government was simply not doing enough to rein in house price rises in the country's biggest city.
Mr Robertson agrees the Reserve Bank would be able to cut interest rates if house prices in Auckland were not rising so quickly.
"The goverment has an ideological blind spot on Auckland housing. They've completely failed over their seven years to address the growing Auckland housing bubble.
"They've got no real plan on the supply side to actually meet the current shortfall of 20,000 houses in Auckland."
Mr Robertson said the Government was also doing nothing to dampen demand for houses in the city.
John Walley, an exporter of high-tech software, says New Zealand needed to know whether offshore buyers were a significant factor in rising Auckland house prices.
Mr Walley said high interest rates driven by the pressure in Auckland were crippling reinvestment in export businesses.
"We need to move in terms of restricting borrowing on rental housing and potentially put some controls on foreign investment," he said.
Mr Walley said a foreign ownership register could also explain what is causing the bubble.