The Reserve Bank says house prices are "particularly stretched" in Auckland, and is calling for the Government to look at untaxed capital gains on investment property.  

The Reserve Bank would like to see "fresh consideration" of possible policy measures to address the tax-preferred status of housing, especially housing investment, Reserve Bank Deputy Governor Grant Spencer said in a speech about housing at the Rotorua Chamber of Commerce.

"Property investors are often setting the marginal market prices that are then applied to the full housing stock within a regional market," he said.

Spencer's call to look at tax on property has been quickly backed by the Manufacturers and Exporters Association and the Green Party.

Latest Real Estate Institute figures out on Tuesday show that the median house price in Auckland was up 13 per cent in the past year to $720,000. The national median house price rose 8 per cent in the past year.

"Indicators point to an increasing presence of investors in the Auckland market and this trend is no doubt being reinforced by the expectation of high rates of return based on untaxed capital gains," Spencer said.

There was also scope to "streamline" consenting for new property development, but it was difficult to manage migration to keep a lid on house prices, and the central bank could not put up interest rates when inflation was so low, Spencer said.

The New Zealand Manufacturers and Exporters Association said it supported the call to correct tax "imbalances" which pushed up house prices, fuelled financial stability risk and pulled investment away from productive investment.

"While the speech makes it clear that increasing the supply of housing is a vital part of the solution, capacity constraints mean new housing can only be built so fast," NZMEA President Tom Thomson said.

"Correcting tax imbalances that encourage speculation could have a far more immediate effect in dampening prices and protecting financial stability while supply catches up," Thomson said.

The Green Party said government policies were driving up house prices and the government should adopt the Reserve Bank recommendation to bring in a Capital Gains Tax.

"It is time for the Government to do what's right and stop putting the interests of landlords and property speculators over the young people who've been priced out of the housing market," Green housing spokesman Kevin Hague said. The Green Party had consistently called for a capital gains tax, he said. 

Meanwhile, Prime Minister John Key said he supported the Reserve Bank using "alternative tools" to address bottlenecks in the Auckland housing market, such as loan to value ratio limits - imposing a speed limit on low deposit home loans.

And the central bank may need to use other such tools, because ultimately the only other way to address rising prices was to lift interest rates.

"And we would not want to see that happening when inflation is very low, because that would have a big impact on all households and businesses, if they were to raise interest rates," Key said.

Asked if there was a need for a new asset class for loans to property investors, Key said there were a range of views of what was driving up prices.

"In my view… there is a bow-wave of demand in Auckland caused by years of under-investing in housing… and now renewed confidence, very low interest rates, and (strong) net migration," Key said.

ASB Bank chief economist Nick Tuffley said the central bank was "very much putting the onus on central and local government to take more concerted action" on the property market.

"And those actions would more directly address the fundamental causes, rather than leaving the RBNZ dealing with the flow-on symptoms," Tuffley said.

But the Reserve Bank did not seem close to taking added prudential action outside of the current LVR restrictions, speed limits on low deposit home loans, and the looming treatment of residential investor property.

"There is an acknowledgement that the RBNZ can only partly offset the fundamental drivers of the housing market imbalance. But its measures are also intended to make the mattress at the bottom of the cliff a bit softer and ensure the ambulance is well polished – in case the current imbalances push the NZ housing market a little too close to the cliff," Tuffley said.

Spencer said housing market "imbalances" were presenting an increasing risk to financial and economic stability.

Since 2014 those imbalances had become worse, especially in Auckland where the shortage of homes is worst and house prices are  "particularly stretched", having increased by three times since the start of 2002. The Reserve Bank estimates that the shortage of homes in Auckland has increased in the past year to between 15,000 and 20,000.

"New Zealand is one of the few advanced economies that has not had a major house price correction in the past 45 years."

Spencer said that a big fall in house prices in New Zealand could be prompted by a range of potential shocks, such as rising global interest rates, or a downturn in the global economy and financial markets.

With 60 per cent of its lending in residential mortgages, the New Zealand banking system could be put under severe pressure in such a downturn.

The resulting contraction in credit would amplify the impact to the domestic economy and financial system, making it more difficult to avoid a severe downturn.

Spencer said that policies to ease the supply constraints must be the main priority, but were unlikely to yield quick results.

Considerable scope existed to streamline the multiple approval processes required to complete a residential development.

"The proposed RMA reforms have the potential to significantly improve the planning and resource consenting processes.

"The best prospect for substantially increasing the supply of dwellings over the next one to two years appears to be in apartment development. The Government and the Auckland Council might consider focussing their efforts on simplifying the approvals process and increasing the designated areas for high-density residential development."

On the demand side, Spencer said that there were practical difficulties in using migration policies to manage the housing cycle.

"Nor can monetary policy be used currently to dampen housing demand, as inflation is below the Reserve Bank's target range."