The Reserve Bank has again raised concerns about investors driving up the Auckland housing market.
Deputy Governor Grant Spencer says investors are now accounting for 41 per cent of Auckland house purchases, up 8 percentage points since late 2013.
"We have seen a particular increase in purchases by smaller investors and investors reliant on credit. Half of the new lending to investors is being written at loan-to-value ratios of over 70 percent," he said in a speech in Auckland today.
"This trend is increasing the risk inherent in the Auckland market. The increasing investor presence is likely to amplify the housing cycle, and worsen the potential damage from a downturn, both to the financial system and the broader economy."
The resurgence in Auckland house prices over the past year has increased the central bank's concerns about financial stability risks, Mr Spencer said.
Auckland prices have risen a further 24 per cent over the past year, compared to 3 per cent for the rest of the country, he said.
This has stretched the price-to-income ratio for the Auckland region to 9, double the ratio for the rest of New Zealand, and places Auckland among the world's most expensive cities.
Mr Spencer says new housing supply has been growing, but nowhere near fast enough to make a dent in the existing housing shortage.
Interest rates won't stay low forever- Prime Minister John Key
He says changes to the Reserve Bank's LVR policy, announced in May, are targeted specifically at Auckland residential investors.
Prime Minister John Key says the Government and the Reserve Bank itself are trying to address the issues Mr Spencer raised.
Mr Key says Christchurch is a good example of the fact that when supply starts matching demand then prices don't go up anymore.
He also says interest rates won't stay low forever, "so when people go and buy houses purely on the expectation they're going to get a capital gain, they've just got to be careful they don't come in for a nasty surprise.
"Just like those people who bought stocks recently and thought they were going to go up forever are in for a nasty surprise today."
Billions of dollars in value have been wiped off global stock markets today amid growing fears over the health of the Chinese economy.
New Zealand investors have not been immune with the local sharemarket down 2 per cent today, one of its sharpest falls of the year.
Labour's housing spokesman Phil Twyford says Mr Spencer has delivered a "scathing criticism of the Government's inaction" on the housing shortage.
Mr Twyford says the new LVRs, which impose 30 per cent deposits on investors in Auckland, "are the only significant housing policy we've seen in years, in stark contrast to the grudging half measures the Government keeps serving up".