'Price rises have a while to go yet'

He said the heat in the Auckland property market in particular was a result of shortage of property due to five years of weak construction. “There is catch-up demand coming from first home buyers and investors. There are new investors seeking better yields than available from bank term deposits. The migration numbers are only now starting to move into above average territory.”

The Reserve Bank has indicated it will reach for loan-to-value speed limits before long but Alexander said he doubted they would have the intended impact.

“The Reserve Bank will attempt to address risky bank lending exposures by imposing minimum deposit requirements or pricing formulas, but their efforts will have little impact and in fact make first-home buyers in particular take out more expensive second mortgages and source properties through developers offering purchase finance."

Prime Minister John Key has indicated that he would prefer first-home buyers are excluded from LVR restrictions but the Reserve Bank is reluctant to do that.

Governor Graeme Wheeler said at his most recent MPS that first-home buyers represented 30% of the new mortgage market. Leaving them out of the exemptions would be carving out a big part of the market, he said.

Wheeler said first-home buyers would also be particularly vulnerable to a collapse in house prices because of their mortgage exposure.

Auckland house prices on average have risen by 14.8% in the past year and sit almost 40% above late-2008 levels. Prices have gained about 7% in the past three months.

Alexander said that could be a response to increasing awareness of a shortage of property.